.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED June 30, 20212022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 1-34392
PLUG POWER INC.
(Exact name of registrant as specified in its charter)
| | |
| | |
Delaware | | 22-3672377 |
(State or Other Jurisdiction of | | (I.R.S. Employer |
Incorporation or Organization) | | Identification Number) |
968 ALBANY SHAKER ROAD, LATHAM, NEW YORK 12110
(Address of Principal Executive Offices, including Zip Code)
(518) 782-7700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | |||
| | |||
| | |||
Title of Each Class |
| Trading Symbol(s) | | Name of Each Exchange on Which Registered |
Common Stock, par value $.01 per share |
| PLUG | | The NASDAQ Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ||||
Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☐ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock, par value of $0.01 per share, outstanding as of August 2, 20215, 2022 was 574,355,448.578,695,912 shares.
INDEX to FORM 10-Q
| Page |
| |
| |
| |
Item 1 – Interim Condensed Consolidated Financial Statements (Unaudited) | 3 |
| |
3 | |
| |
4 | |
| |
5 | |
| |
6 | |
| |
7 | |
| |
Notes to Interim Condensed Consolidated Financial Statements | 8 |
| |
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
| |
Item 3 – Quantitative and Qualitative Disclosures About Market Risk |
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds |
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
2
PART 1. FINANCIAL INFORMATION
Item 1 — Interim Financial Statements (Unaudited)
Plug Power Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2021 | | 2020 | ||
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 3,160,170 | | $ | 1,312,404 |
Restricted cash | | | 81,460 | | | 64,041 |
Available-for-sale securities, at fair value | | | 1,242,721 | | | — |
Equity securities | | | 120,302 | | | — |
Accounts receivable | |
| 91,359 | |
| 43,041 |
Inventory | |
| 209,820 | |
| 139,386 |
Prepaid expenses and other current assets | |
| 60,579 | |
| 44,324 |
Total current assets | |
| 4,966,411 | |
| 1,603,196 |
| | | | | | |
Restricted cash | |
| 347,933 | |
| 257,839 |
Property, plant, and equipment, net | | | 110,475 | |
| 74,549 |
Right of use assets related to finance leases, net | | | 16,926 | | | 5,724 |
Right of use assets related to operating leases, net | | | 145,803 | | | 117,016 |
Equipment related to power purchase agreements and fuel delivered to customers, net | | | 78,918 | |
| 75,807 |
Goodwill | | | 72,083 | | | 72,387 |
Intangible assets, net | |
| 38,052 | |
| 39,251 |
Other assets | |
| 12,225 | |
| 5,513 |
Total assets | | $ | 5,788,826 | | $ | 2,251,282 |
| | | | | | |
Liabilities and Stockholders’ Equity | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 70,027 | | $ | 50,198 |
Accrued expenses | |
| 35,405 | |
| 46,083 |
Deferred revenue | |
| 27,004 | |
| 23,275 |
Operating lease liabilities | | | 19,915 | | | 14,314 |
Finance lease liabilities | | | 2,728 | | | 903 |
Finance obligations | | | 33,846 | | | 32,717 |
Current portion of long-term debt | | | 30,403 | | | 25,389 |
Other current liabilities | |
| 31,750 | |
| 29,487 |
Total current liabilities | |
| 251,078 | |
| 222,366 |
Deferred revenue | |
| 45,272 | |
| 32,944 |
Operating lease liabilities | | | 122,203 | | | 99,624 |
Finance lease liabilities | | | 12,380 | | | 4,493 |
Finance obligations | |
| 161,959 | |
| 148,836 |
Convertible senior notes, net | | | 192,011 | | | 85,640 |
Long-term debt | | | 130,081 | | | 150,013 |
Other liabilities | |
| 42,973 | |
| 40,447 |
Total liabilities | |
| 957,957 | |
| 784,363 |
| | | | | | |
Stockholders’ equity: | | | | | | |
Common stock, $0.01 par value per share; 750,000,000 shares authorized; Issued (including shares in treasury): 586,848,225 at June 30, 2021 and 473,977,469 at December 31, 2020 | |
| 5,868 | |
| 4,740 |
Additional paid-in capital | |
| 6,962,720 | |
| 3,446,650 |
Accumulated other comprehensive income | |
| 34 | |
| 2,451 |
Accumulated deficit | |
| (2,097,319) | |
| (1,946,488) |
Less common stock in treasury: 15,926,068 at both June 30, 2021 and December 31, 2020 | | | (40,434) | | | (40,434) |
Total stockholders’ equity | |
| 4,830,869 | |
| 1,466,919 |
Total liabilities and stockholders’ equity | | $ | 5,788,826 | | $ | 2,251,282 |
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2022 | | 2021 | ||
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 2,255,951 | | $ | 2,481,269 |
Restricted cash | | | 146,013 | | | 118,633 |
Available-for-sale securities, at fair value | | | 715,906 | | | 1,240,265 |
Equity securities | | | 134,342 | | | 147,995 |
Accounts receivable | |
| 61,502 | |
| 92,675 |
Inventory | |
| 429,549 | |
| 269,163 |
Contract assets | | | 38,961 | | | 38,637 |
Prepaid expenses and other current assets | |
| 111,846 | |
| 59,888 |
Total current assets | |
| 3,894,070 | |
| 4,448,525 |
| | | | | | |
Restricted cash | |
| 559,713 | |
| 532,292 |
Property, plant, and equipment, net | | | 431,492 | |
| 255,623 |
Right of use assets related to finance leases, net | | | 44,201 | | | 32,494 |
Right of use assets related to operating leases, net | | | 241,421 | | | 212,537 |
Equipment related to power purchase agreements and fuel delivered to customers, net | | | 83,159 | |
| 72,902 |
Contract assets | | | 182 | | | 120 |
Goodwill | | | 235,026 | | | 220,436 |
Intangible assets, net | |
| 204,213 | |
| 158,208 |
Investments in non-consolidated entities and non-marketable equity securities | | | 37,007 | | | 12,892 |
Other assets | |
| 3,920 | |
| 4,047 |
Total assets | | $ | 5,734,404 | | $ | 5,950,076 |
| | | | | | |
Liabilities and Stockholders’ Equity | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 146,166 | | $ | 92,307 |
Accrued expenses | |
| 98,341 | |
| 79,237 |
Deferred revenue and other contract liabilities | |
| 60,315 | |
| 116,377 |
Operating lease liabilities | | | 37,214 | | | 30,822 |
Finance lease liabilities | | | 6,324 | | | 4,718 |
Finance obligations | | | 46,784 | | | 42,040 |
Current portion of long-term debt | | | 980 | | | 15,252 |
Contingent consideration, loss accrual for service contracts, and other current liabilities | |
| 31,645 | |
| 39,800 |
Total current liabilities | |
| 427,769 | |
| 420,553 |
| | | | | | |
Deferred revenue and other contract liabilities | |
| 67,390 | |
| 66,713 |
Operating lease liabilities | | | 193,333 | | | 175,635 |
Finance lease liabilities | | | 32,972 | | | 24,611 |
Finance obligations | |
| 219,622 | |
| 211,644 |
Convertible senior notes, net | | | 193,269 | | | 192,633 |
Long-term debt | | | 91,677 | | | 112,794 |
Contingent consideration, loss accrual for service contracts, and other liabilities | |
| 169,791 | |
| 139,797 |
Total liabilities | |
| 1,395,823 | |
| 1,344,380 |
| | | | | | |
Stockholders’ equity: | | | | | | |
Common stock, $0.01 par value per share; 1,500,000,000 shares authorized; Issued (including shares in treasury): 595,709,539 at June 30, 2022 and 594,729,610 at December 31, 2021 | |
| 5,958 | |
| 5,947 |
Additional paid-in capital | |
| 7,163,486 | |
| 7,070,710 |
Accumulated other comprehensive loss | |
| (28,989) | |
| (1,532) |
Accumulated deficit | |
| (2,726,688) | |
| (2,396,903) |
Less common stock in treasury: 17,210,049 at June 30, 2022 and 17,074,710 at December 31, 2021 | | | (75,186) | | | (72,526) |
Total stockholders’ equity | |
| 4,338,581 | |
| 4,605,696 |
Total liabilities and stockholders’ equity | | $ | 5,734,404 | | $ | 5,950,076 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
3
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | Three Months Ended | | Six Months Ended | ||||||||||||||||
| June 30, | | June 30, | June 30, | | June 30, | ||||||||||||||||
| 2021 |
| 2020 | | 2021 |
| 2020 | 2022 |
| 2021 | | 2022 |
| 2021 | ||||||||
Net revenue: | | | | | | | | | | | | | | | | | | | | | | |
Sales of fuel cell systems and related infrastructure | $ | 99,278 | | $ | 47,746 | | $ | 146,050 | | $ | 68,214 | |||||||||||
Sales of fuel cell systems, related infrastructure and equipment | $ | 116,233 | | $ | 99,278 | | $ | 225,080 | | $ | 146,050 | |||||||||||
Services performed on fuel cell systems and related infrastructure | | 5,675 | | | 6,236 | | | 11,720 | | | 12,757 | | 8,822 | | | 5,675 | | | 17,062 | | | 11,720 |
Power Purchase Agreements |
| 8,361 | |
| 6,579 | |
| 16,187 | |
| 13,000 | |||||||||||
Fuel delivered to customers |
| 11,121 | |
| 7,372 | |
| 22,248 | |
| 14,705 | |||||||||||
Power purchase agreements |
| 11,169 | |
| 8,361 | |
| 21,206 | |
| 16,187 | |||||||||||
Fuel delivered to customers and related equipment |
| 14,472 | |
| 11,121 | |
| 27,900 | |
| 22,248 | |||||||||||
Other | | 122 | | | 62 | | | 310 | | | 138 | | 571 | | | 122 | | | 822 | | | 310 |
Net revenue | | 124,557 | | | 67,995 | | | 196,515 | | | 108,814 | | 151,267 | | | 124,557 | | | 292,070 | | | 196,515 |
Cost of revenue: | | | | | | | | | | | | | | | | | | | | | | |
Sales of fuel cell systems and related infrastructure |
| 79,913 | |
| 33,888 | |
| 108,887 | |
| 47,862 | |||||||||||
Sales of fuel cell systems, related infrastructure and equipment |
| 94,153 | |
| 79,913 | |
| 182,981 | |
| 108,887 | |||||||||||
Services performed on fuel cell systems and related infrastructure |
| 15,475 | |
| 7,773 | |
| 28,561 | |
| 18,120 |
| 11,612 | |
| 15,475 | |
| 25,487 | |
| 28,561 |
Provision for loss contracts related to service | | 6,694 | | | 706 | | | 8,179 | | | 801 | | 1,068 | | | 6,694 | | | 3,116 | | | 8,179 |
Power Purchase Agreements |
| 22,234 | |
| 14,504 | |
| 40,577 | |
| 29,275 | |||||||||||
Fuel delivered to customers |
| 40,331 | |
| 11,076 | |
| 62,474 | |
| 22,330 | |||||||||||
Power purchase agreements |
| 34,892 | |
| 22,234 | |
| 66,645 | |
| 40,577 | |||||||||||
Fuel delivered to customers and related equipment |
| 41,607 | |
| 40,331 | |
| 80,879 | |
| 62,474 | |||||||||||
Other |
| 208 | |
| 63 | |
| 306 | |
| 144 |
| 400 | |
| 208 | |
| 777 | |
| 306 |
Total cost of revenue |
| 164,855 | |
| 68,010 | |
| 248,984 | |
| 118,532 |
| 183,732 | |
| 164,855 | |
| 359,885 | |
| 248,984 |
| | | | | | | | | | | | | | | | | | | | | | |
Gross loss |
| (40,298) | |
| (15) | |
| (52,469) | |
| (9,718) |
| (32,465) | |
| (40,298) | |
| (67,815) | |
| (52,469) |
| | | | | | | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | |
Research and development | | 11,247 | | | 4,873 | | | 20,989 | | | 9,647 | | 23,557 | | | 11,247 | | | 44,018 | | | 20,989 |
Selling, general and administrative | | 38,652 | | | 21,644 | | | 64,231 | | | 32,753 | | 95,953 | | | 38,652 | | | 176,842 | | | 64,231 |
Change in fair value of contingent consideration | | (560) | | | — | | | 230 | | | — | | (5,066) | | | (560) | | | (2,605) | | | 230 |
Total operating expenses | | 49,339 | | | 26,517 | | | 85,450 | | | 42,400 | | 114,444 | | | 49,339 | | | 218,255 | | | 85,450 |
| | | | | | | | | | | | | | | | | | | | | | |
Operating loss | | (89,637) | | | (26,532) | | | (137,919) | | | (52,118) | | (146,909) | | | (89,637) | | | (286,070) | | | (137,919) |
| | | | | | | | | | | | | | | | | | | | | | |
Interest |
| (10,268) | |
| (13,368) | |
| (22,534) | |
| (25,157) | |||||||||||
Interest income |
| 3,838 | |
| 1,446 | |
| 5,892 | |
| 1,513 | |||||||||||
Interest expense | | (11,203) | | | (11,714) | | | (19,851) | | | (24,047) | |||||||||||
Other expense, net |
| (70) | |
| (94) | |
| (268) | |
| (151) |
| (2,456) | |
| (70) | |
| (3,765) | |
| (268) |
Realized gain on investments, net | | 18 | | | — | | | 18 | | | — | |||||||||||
Realized loss on investments, net | | (468) | | | 18 | | | (1,315) | | | 18 | |||||||||||
Change in fair value of equity securities | | 323 | | | — | | | 323 | | | — | | (13,484) | | | 323 | | | (18,643) | | | 323 |
Gain on extinguishment of debt | | — | | | 13,222 | | | — | | | 13,222 | |||||||||||
Loss on equity method investments | | (2,191) | | | — | | | (6,024) | | | — | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Loss before income taxes | $ | (99,634) | | $ | (26,772) | | $ | (160,380) | | $ | (64,204) | $ | (172,873) | | $ | (99,634) | | $ | (329,776) | | $ | (160,380) |
| | | | | | | | | | | | | | | | | | | | | | |
Income tax benefit |
| — | |
| 17,371 | |
| — | |
| 17,371 | |||||||||||
Income tax expense |
| 423 | |
| — | |
| 9 | |
| — | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net loss attributable to the Company | $ | (99,634) | | $ | (9,401) | | $ | (160,380) | | $ | (46,833) | |||||||||||
| | | | | | | | | | | | |||||||||||
Preferred stock dividends declared |
| — | |
| (13) | |
| — | |
| (26) | |||||||||||
| | | | | | | | | | | | |||||||||||
Net loss attributable to common stockholders | $ | (99,634) | | $ | (9,414) | | $ | (160,380) | | $ | (46,859) | |||||||||||
Net loss | $ | (173,296) | | $ | (99,634) | | $ | (329,785) | | $ | (160,380) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net loss per share: | | | | | | | | | | | | | | | | | | | | | | |
Basic and diluted | $ | (0.18) | | $ | (0.03) | | $ | (0.30) | | $ | (0.15) | $ | (0.30) | | $ | (0.18) | | $ | (0.57) | | $ | (0.30) |
| | | | | | | | | | | | | | | | | | | | | | |
Weighted average number of common stock outstanding |
| 567,033,722 | |
| 316,645,050 | |
| 540,394,003 | |
| 310,918,626 |
| 578,043,278 | |
| 567,033,722 | |
| 578,217,636 | |
| 540,394,003 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
4
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended | | Three months ended | | Six months ended | ||||||||||||||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss attributable to the Company | | $ | (99,634) | | $ | (9,401) | | $ | (160,380) | | $ | (46,833) | ||||||||||||
Other comprehensive gain (loss): | | | | | | | | | | | | | ||||||||||||
Foreign currency translation gain (loss) | |
| 581 | |
| 107 | |
| (542) | |
| (129) | ||||||||||||
Net loss | | $ | (173,296) | | $ | (99,634) | | $ | (329,785) | | $ | (160,380) | ||||||||||||
Other comprehensive loss: | | | | | | | | | | | | | ||||||||||||
Foreign currency translation (loss) gain | |
| (7,198) | |
| 581 | |
| (9,048) | |
| (542) | ||||||||||||
Change in net unrealized loss on available-for-sale securities | | | (1,967) | | | — | | | (1,875) | | | — | | | (3,329) | | | (1,967) | | | (18,409) | | | (1,875) |
Comprehensive loss attributable to the Company | | $ | (101,020) | | $ | (9,294) | | $ | (162,797) | | $ | (46,962) | | $ | (183,823) | | $ | (101,020) | | $ | (357,242) | | $ | (162,797) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock dividends declared | | | — | | | (13) | | | — | | | (26) | ||||||||||||
Comprehensive loss attributable to common stockholders | | $ | (101,020) | | $ | (9,307) | | $ | (162,797) | | $ | (46,988) |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
5
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
| |
|
| |
| Accumulated |
| |
|
| |
|
| |
| | ||
| | | | | | | Additional | | Other | | | | | | | | | | Total | |||
| | Common Stock | | Paid-in | | Comprehensive | | Treasury Stock | | Accumulated | | Stockholders’ | ||||||||||
|
| Shares |
| Amount |
| Capital |
| Income |
| Shares |
| Amount |
| Deficit |
| Equity | ||||||
December 31, 2020 |
| 473,977,469 | | $ | 4,740 | | $ | 3,446,650 | | $ | 2,451 |
| 15,926,068 | | $ | (40,434) | | $ | (1,946,488) | | $ | 1,466,919 |
Net loss attributable to the Company | | — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (160,380) | |
| (160,380) |
Cumulative impact of Accounting Standards Update 2020-06 adoption | | — | | | — | | | (130,185) | | | — | | — | | | — | | | 9,549 | | | (120,636) |
Other comprehensive loss | | — | |
| — | |
| — | |
| (2,417) |
| — | |
| — | |
| — | | | (2,417) |
Stock-based compensation | | 15,166 | |
| — | |
| 20,815 | |
| — |
| — | |
| — | |
| — | |
| 20,815 |
Public offerings, common stock, net | | 32,200,000 | | | 322 | | | 2,022,866 | | | — | | — | | | — | | | — | |
| 2,023,188 |
Private offerings, common stock, net | | 54,966,188 | | | 549 | | | 1,564,088 | | | — | | — | | | — | | | — | | | 1,564,637 |
Stock option exercises | | 1,760,450 | |
| 18 | |
| 4,687 | |
| — |
| — | |
| — | |
| — | |
| 4,705 |
Exercise of warrants | | 20,843,108 | |
| 208 | |
| 15,242 | |
| — |
| — | |
| — | |
| — | | | 15,450 |
Provision for common stock warrants | | — | | | — | | | 3,243 | | | — | | — | | | — | | | — | |
| 3,243 |
Conversion of 3.75% Convertible Senior Notes | | 3,016,036 | | | 30 | | | 15,155 | | | — | | — | | | — | | | — | |
| 15,185 |
Conversion of 5.5% Convertible Senior Notes | | 69,808 | | | 1 | | | 159 | | | — | | — | | | — | | | — | | | 160 |
June 30, 2021 | | 586,848,225 | | $ | 5,868 | | $ | 6,962,720 | | $ | 34 |
| 15,926,068 | | $ | (40,434) | | $ | (2,097,319) | | $ | 4,830,869 |
| | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 |
| 318,637,560 | | $ | 3,186 | | $ | 1,506,953 | | $ | 1,288 |
| 15,259,045 | | $ | (31,216) | | $ | (1,350,307) | | $ | 129,904 |
Net loss attributable to the Company |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (46,833) | |
| (46,833) |
Other comprehensive loss |
| — | |
| — | |
| — | |
| (129) |
| — | |
| — | |
| — | |
| (129) |
Stock-based compensation |
| 586,558 | |
| 6 | |
| 6,325 | |
| — |
| 33,371 | |
| (143) | |
| — | |
| 6,188 |
Stock dividend |
| 5,156 | |
| — | |
| 20 | |
| — |
| — | |
| — | |
| (20) | |
| — |
Public offerings, net | | — | | | — | | | (269) | | | | | — | | | — | | | — | | | (269) |
Stock option exercises |
| 6,905,936 | |
| 69 | |
| 15,729 | |
| — |
| 175 | |
| — | |
| — | |
| 15,798 |
Equity component of convertible senior notes, net of issuance costs and income tax benefit | | — | | | — | | | 115,952 | | | — | | — | | | — | | | — | | | 115,952 |
Purchase of capped calls | | — | | | — | | | (16,253) | | | — | | — | | | — | | | — | | | (16,253) |
Termination of capped calls | | — | | | — | | | 24,158 | | | — | | — | | | — | | | — | | | 24,158 |
Provision for common stock warrants | | — | | | — | | | 7,983 | | | — | | — | | | — | | | — | | | 7,983 |
Accretion of discount, preferred stock | | — | | | — | | | (29) | | | — | | — | | | — | | | — | | | (29) |
Conversion of preferred stock |
| 2,998,526 | |
| 30 | |
| 1,148 | |
| — |
| — | |
| — | |
| — | |
| 1,178 |
Repurchase of 5.5% Convertible Senior Notes, net of income tax benefit | | 9,409,591 | | | 94 | | | (52,855) | | | — | | — | | | — | | | — | | | (52,761) |
Shares issued for acquisitions | | 9,658,465 | | | 97 | | | 49,576 | | | — | | — | | | — | | | — | | | 49,673 |
June 30, 2020 |
| 348,201,792 | | $ | 3,482 | | $ | 1,658,438 | | $ | 1,159 |
| 15,292,591 | | $ | (31,359) | | $ | (1,397,160) | | $ | 234,560 |
| | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
| |
|
| |
| Accumulated |
| |
|
| |
|
| |
| | ||
| | | | | | | Additional | | Other | | | | | | | | | | Total | |||
| | Common Stock | | Paid-in | | Comprehensive | | Treasury Stock | | Accumulated | | Stockholders’ | ||||||||||
|
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Shares |
| Amount |
| Deficit |
| Equity | ||||||
December 31, 2021 |
| 594,729,610 | | $ | 5,947 | | $ | 7,070,710 | | $ | (1,532) |
| 17,074,710 | | $ | (72,526) | | $ | (2,396,903) | | $ | 4,605,696 |
Net loss | | — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (156,489) | |
| (156,489) |
Other comprehensive loss | | — | |
| — | |
| — | |
| (16,930) |
| — | |
| — | |
| — | | | (16,930) |
Stock-based compensation | | 226,221 | |
| 2 | |
| 43,384 | |
| — |
| — | |
| — | |
| — | |
| 43,386 |
Stock option exercises and issuance of shares of restricted common stock | | 253,525 | |
| 3 | |
| 288 | |
| — |
| — | |
| — | |
| — | |
| 291 |
Treasury stock acquired from employees upon exercise of stock options and vesting of restricted stock | | — | | | — | | | — | | | — | | 71,627 | | | (1,465) | | | — | | | (1,465) |
Provision for common stock warrants | | — | | | — | | | 1,743 | | | — | | — | | | — | | | — | |
| 1,743 |
March 31, 2022 |
| 595,209,356 | | $ | 5,952 | | $ | 7,116,125 | | $ | (18,462) |
| 17,146,337 | | $ | (73,991) | | $ | (2,553,392) | | $ | 4,476,232 |
Net loss | | — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (173,296) | |
| (173,296) |
Other comprehensive loss | | — | |
| — | |
| — | |
| (10,527) |
| — | |
| — | |
| — | | | (10,527) |
Stock-based compensation | | 108,216 | |
| 2 | |
| 44,857 | |
| — |
| — | |
| — | |
| — | |
| 44,859 |
Stock option exercises and issuance of shares of restricted common stock | | 391,967 | |
| 4 | |
| 525 | |
| — |
| — | |
| — | |
| — | |
| 529 |
Treasury stock acquired from employees upon exercise of stock options and vesting of restricted stock | | — | | | — | | | — | | | — | | 63,712 | | | (1,195) | | | — | | | (1,195) |
Provision for common stock warrants | | — | | | — | | | 1,979 | | | — | | — | | | — | | | — | |
| 1,979 |
June 30, 2022 | | 595,709,539 | | $ | 5,958 | | $ | 7,163,486 | | $ | (28,989) |
| 17,210,049 | | $ | (75,186) | | $ | (2,726,688) | | $ | 4,338,581 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
December 31, 2020 |
| 473,977,469 | | $ | 4,740 | | $ | 3,446,650 | | $ | 2,451 |
| 15,926,068 | | $ | (40,434) | | $ | (1,946,488) | | $ | 1,466,919 |
Net loss |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (60,746) | |
| (60,746) |
Cumulative impact of Accounting Standards Update 2020-06 adoption | | — | | | — | | | (130,249) | | | — | | — | | | — | | | 9,550 | | | (120,699) |
Other comprehensive gain |
| — | |
| — | |
| — | |
| (1,031) |
| — | |
| — | |
| — | |
| (1,031) |
Stock-based compensation |
| 15,166 | |
| — | |
| 9,695 | |
| — |
| — | |
| — | |
| — | |
| 9,695 |
Public offerings, common stock, net | | 32,200,000 | | | 322 | | | 2,022,866 | | | — | | — | | | — | | | — | | | 2,023,188 |
Private offerings, common stock, net | | 54,966,188 | | | 549 | | | 1,564,088 | | | — | | — | | | — | | | — | | | 1,564,637 |
Stock option exercises |
| 1,758,375 | |
| 18 | |
| 4,691 | |
| — |
| — | |
| — | |
| — | |
| 4,709 |
Exercise of warrants | | 16,308,978 | | | 163 | | | 15,282 | | | — | | — | | | — | | | — | | | 15,445 |
Provision for common stock warrants | | — | | | — | | | 1,601 | | | — | | — | | | — | | | — | | | 1,601 |
Conversion of 7.5% Convertible Senior Note | | 3,016,036 | | | 30 | | | 15,155 | | | — | | — | | | — | | | — | | | 15,185 |
Repurchase of 5.5% Convertible Senior Notes, net of income tax benefit | | 69,808 | | | 1 | | | 159 | | | — | | — | | | — | | | — | | | 160 |
March 31, 2021 |
| 582,312,020 | | $ | 5,823 | | $ | 6,949,938 | | $ | 1,420 |
| 15,926,068 | | $ | (40,434) | | $ | (1,997,684) | | $ | 4,919,063 |
Net loss |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (99,634) | |
| (99,634) |
Cumulative impact of Accounting Standards Update 2020-06 adoption | | — | | | — | | | 64 | | | — | | — | | | — | | | (1) | | | 63 |
Other comprehensive gain |
| — | |
| — | |
| — | |
| (1,386) |
| — | |
| — | |
| — | |
| (1,386) |
Stock-based compensation |
| — | |
| — | |
| 11,120 | |
| — |
| — | |
| — | |
| — | |
| 11,120 |
Stock option exercises |
| 2,075 | |
| — | |
| (4) | |
| — |
| — | |
| — | |
| — | |
| (4) |
Exercise of warrants | | 4,534,130 | | | 45 | | | (40) | | | — | | — | | | — | | | — | | | 5 |
Provision for common stock warrants | | — | | | — | | | 1,642 | | | — | | — | | | — | | | — | | | 1,642 |
June 30, 2021 |
| 586,848,225 | | $ | 5,868 | | $ | 6,962,720 | | $ | 34 |
| 15,926,068 | | $ | (40,434) | | $ | (2,097,319) | | $ | 4,830,869 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
6
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| | | | | | | | | | | | |
| | Six months ended | Six months ended June 30, | | ||||||||
| | June 30, | 2022 |
| 2021 |
| ||||||
|
| 2021 |
| 2020 | ||||||||
Operating Activities | | | | | | | ||||||
Net loss attributable to the Company | | $ | (160,380) | | $ | (46,833) | ||||||
Operating activities | | | | | | | ||||||
Net loss | $ | (329,785) | | $ | (160,380) | | ||||||
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | |
Depreciation of long-lived assets | |
| 9,725 | |
| 6,069 |
| 11,204 | |
| 9,725 | |
Amortization of intangible assets | |
| 730 | |
| 398 |
| 10,374 | |
| 730 | |
Stock-based compensation | |
| 20,815 | |
| 6,188 |
| 88,245 | |
| 20,815 | |
Gain on extinguishment of debt | | | — | | | (13,222) | ||||||
Amortization of debt issuance costs and discount on convertible senior notes | | | 1,726 | | | 6,528 | | 1,336 | | | 1,726 | |
Provision for common stock warrants | | | 3,452 | | | 7,983 | | 3,942 | | | 3,452 | |
Income tax benefit | | | — | | | (17,371) | ||||||
Loss on service contracts | | | 4,399 | | | 277 | ||||||
Deferred income tax benefit | | (916) | | | — | | ||||||
(Benefit)/loss on service contracts | | (18,131) | | | 4,399 | | ||||||
Fair value adjustment to contingent consideration | | | (230) | | | — | | (2,605) | | | (230) | |
Net realized gain on investments | | | (18) | | | — | ||||||
Net realized loss on investments | | 1,315 | | | (18) | | ||||||
Amortization of premium on available-for-sale securities | | 4,560 | | | — | | ||||||
Lease origination costs | | | (4,553) | | | — | | (3,150) | | | (4,553) | |
Loss on disposal of assets | | 268 | | | | | ||||||
Change in fair value for equity securities | | | (323) | | | — | | 18,643 | | | (323) | |
Loss on equity method investments | | 6,024 | | | — | | ||||||
Changes in operating assets and liabilities that provide (use) cash: | | | | | | | | | | | | |
Accounts receivable | |
| (48,318) | |
| (18,333) |
| 31,990 | |
| (48,318) | |
Inventory | |
| (70,588) | |
| (37,983) |
| (159,445) | |
| (70,588) | |
Prepaid expenses, and other assets | |
| (22,967) | |
| (11,887) | ||||||
Contract assets | | (386) | | | — | | ||||||
Prepaid expenses and other assets |
| (51,654) | |
| (22,967) | | ||||||
Accounts payable, accrued expenses, and other liabilities | |
| 4,047 | |
| 3,903 |
| 38,663 | |
| 4,047 | |
Deferred revenue | |
| 15,848 | |
| 2,392 | ||||||
Deferred revenue and other contract liabilities |
| (55,605) | |
| 15,848 | | ||||||
Net cash used in operating activities | |
| (246,635) | |
| (111,891) |
| (405,113) | |
| (246,635) | |
| | | | | | | | | | | | |
Investing Activities | | | | | | | ||||||
Investing activities | | | | | | | ||||||
Purchases of property, plant and equipment | |
| (33,062) | |
| (5,009) |
| (157,838) | |
| (33,062) | |
Purchases of equipment related to Power Purchase Agreements and equipment related to fuel delivered to customers | | | (7,598) | | | (6,256) | ||||||
Purchases of equipment related to power purchase agreements and equipment related to fuel delivered to customers | | (15,268) | | | (7,598) | | ||||||
Purchase of available-for-sale securities | | | (1,504,891) | | | — | | (143,230) | | | (1,504,891) | |
Proceeds from sales and maturities of available-for-sale securities | | | 260,313 | | | — | ||||||
Proceeds from sales of available-for-sale securities | | 475,676 | | | 260,313 | | ||||||
Proceeds from maturities of available-for-sale securities | | 167,629 | | | — | | ||||||
Purchase of equity securities | | | (119,979) | | | — | | (4,990) | | | (119,979) | |
Net cash paid for acquisition | | | - | | | (45,286) | ||||||
Net cash used in investing activities | |
| (1,405,217) | |
| (56,551) | ||||||
Net cash paid for acquisitions |
| (26,473) | |
| — | | ||||||
Cash paid for non-consolidated entities and non-marketable equity securities | | (30,139) | | | — | | ||||||
Net cash provided by (used in) investing activities |
| 265,367 | |
| (1,405,217) | | ||||||
| | | | | | | | | | | | |
Financing Activities | | | | | | | ||||||
Financing activities | | | | | | | ||||||
Proceeds from exercise of warrants, net of transaction costs | |
| 15,450 | |
| — |
| — | |
| 15,450 | |
Payments of contingent consideration | | (2,667) | | | — | | ||||||
Proceeds from public and private offerings, net of transaction costs | |
| 3,587,825 | |
| (269) |
| — | |
| 3,587,825 | |
Payments of tax withholding on behalf of employees for net stock settlement of stock-based compensation | | (2,660) | | | — | | ||||||
Proceeds from exercise of stock options | |
| 4,705 | |
| 15,798 |
| 820 | |
| 4,705 | |
Proceeds from issuance of convertible senior notes, net | | | — | | | 205,100 | ||||||
Repurchase of convertible senior notes | | | — | | | (90,238) | ||||||
Purchase of capped calls and common stock forward | | | — | | | (16,253) | ||||||
Proceeds from termination of capped calls | | | — | | | 24,158 | ||||||
Principal payments on long-term debt | | | (15,564) | | | (21,626) | | (36,089) | | | (15,564) | |
Proceeds from long-term debt, net | | | — | | | 49,000 | ||||||
Repayments of finance obligations and finance leases | | | (17,281) | | | (11,129) | ||||||
Proceeds from finance obligations | |
| 32,159 | |
| 27,678 | | 35,048 | | | 32,159 | |
Net cash provided by financing activities | |
| 3,607,294 | |
| 182,219 | ||||||
Principal repayments of finance obligations and finance leases | | (25,168) | | | (17,281) | | ||||||
Net cash (used in) provided by financing activities |
| (30,716) | |
| 3,607,294 | | ||||||
Effect of exchange rate changes on cash | |
| (163) | |
| (24) |
| (55) | |
| (163) | |
Increase in cash, cash equivalents and restricted cash | |
| 1,955,279 | |
| 13,753 | ||||||
(Decrease)/increase in cash and cash equivalents |
| (225,318) | |
| 1,847,766 | | ||||||
Increase in restricted cash | | 54,801 | | | 107,513 | | ||||||
Cash, cash equivalents, and restricted cash beginning of period | |
| 1,634,284 | |
| 369,500 |
| 3,132,194 | |
| 1,634,284 | |
Cash, cash equivalents, and restricted cash end of period | | $ | 3,589,563 | | $ | 383,253 | $ | 2,961,677 | | $ | 3,589,563 | |
| | | | | | | | | | | | |
Supplemental disclosure of cash flow information | | | | | | | | | | | | |
Cash paid for interest | | $ | 11,261 | | $ | 9,466 | ||||||
Cash paid for interest, net capitalized interest of $5.8 million | $ | 18,737 | | $ | 11,261 | | ||||||
| | | | | | | | | | | | |
Summary of non-cash activity | | | | | | | | | | | | |
Recognition of right of use asset - finance leases | | $ | 11,286 | | $ | — | $ | 12,644 | | $ | 11,286 | |
Recognition of right of use asset - operating leases | | | 39,271 | | | 6,836 | | 40,352 | | | 39,271 | |
Conversion of preferred stock to common stock | | | — | | | 441 | ||||||
Net tangible liabilities assumed in a business combination | | (5,124) | | | — | | ||||||
Intangible assets acquired in a business combination | | 60,522 | | | — | | ||||||
Conversion of convertible senior notes to common stock | | | 15,345 | | | — | | — | | | 15,345 | |
Change in accounts payable related to accrued purchases of property, plant and equipment | | | 6,124 | | | — | ||||||
Net transfers between inventory and long-lived assets | | 916 | | | — | | ||||||
Accrued purchase of fixed assets, cash to be paid in subsequent period | | 39,681 | | | 6,124 | |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
7
1. Nature of Operations
Plug Power Inc. (the “Company,” “Plug,” “we” or “our”) is facilitating the paradigm shift to an increasingly electrified world by innovating cutting-edge hydrogen and fuel cell solutions. In our core business,While we provide and continue to develop commercially viablecommercially-viable hydrogen and fuel cell product solutions to replace lead-acid and lithium batteries in electric material handling vehicles and industrial trucks for some of the world’s largest retail-distribution and manufacturing businesses.businesses, we have expanded our offerings to support a variety of commercial operations that can be powered with green hydrogen. We also provide electrolyzers that allow customers — such as refineries, producers of chemicals, steel and fertilizer and commercial refueling stations — to generate hydrogen on-site. Additionally, we intend for our electrolyzers to be used to generate green hydrogen within Plug’s own plants that will then be sold to customers. We are focusing our efforts on industrial mobility applications, including electric forklifts and electric industrial vehicles, at multi-shift high volume manufacturing and high throughput distribution sites where we believe our products and services provide a unique combination of productivity, flexibility, and environmental benefits. Additionally, we manufacture and sell fuel cell products to replace batteries and diesel generators in stationary backupback-up power applications. These products have proven valuable withapplications for telecommunications, transportation, and utility customers as robust, reliable,customers. Plug supports these markets with an ecosystem of integrated products that make, transport, handle, dispense and sustainable power solutions.use hydrogen.
Our current products and services include:
GenDrive: GenDrive is our hydrogen fueled Proton Exchange Membrane (“PEM”) fuel cell system providing power to material handling electric vehicles, including class 1, 2, 3 and 6 electric forklifts, Automated Guided Vehicles (“AGVs”) and ground support equipment;
GenFuel: GenFuel is our liquid hydrogen fueling delivery, generation, storage, and dispensing system;
GenCare: GenCare is our ongoing ‘internet of things’-based maintenance and on-site service program for GenDrive fuel cell systems, GenSure fuel cell systems, GenFuel hydrogen storage and dispensing products and ProGen fuel cell engines;
GenSure: GenSure is our stationary fuel cell solution providing scalable, modular PEM fuel cell power to support the backup and grid-support power requirements of the telecommunications, transportation, and utility sectors; GenSure High Power Fuel Cell Platform will support large scale stationary power and data center markets;
GenKey: GenKey is our vertically integrated “turn-key” solution combining either GenDrive or GenSure fuel cell power with GenFuel fuel and GenCare aftermarket service, offering complete simplicity to customers transitioning to fuel cell power;
ProGen: ProGen is our fuel cell stack and engine technology currently used globally in mobility and stationary fuel cell systems, and as engines in electric delivery vans. This includes the Plug Power membrane electrode assembly (“MEA”), a critical component of the fuel cell stack used in zero-emission fuel cell electric vehicle engines; and
GenFuel Electrolyzers: GenFuel electrolyzers are modular, scalable hydrogen generators optimized for clean hydrogen production. Electrolyzers generate hydrogen from water using electricity and a special membrane and “green” hydrogen is generated by using renewable energy inputs, such as solar or wind power.
We provide our products worldwide through our direct product sales force, and by leveraging relationships with original equipment manufacturers (“OEMs”) and their dealer networks. Plug Power is targeting Asia and Europe for expansion in adoption. Europe has rolled out ambitious targets for the hydrogen economy and Plug Power is executing on its strategy to become one of the European leaders. This includes a targeted account strategy for material handling as well as securing strategic partnerships with European OEMs, energy companies, utility leaders and accelerating our electrolyzer business. We manufacture our commercially viable products in Latham, New York, Rochester, New York and Spokane, Washington and support liquid hydrogen generation and logistics in Charleston, Tennessee.
Our wholly-owned subsidiary, Plug Power France, has created a joint venture with Renault SAS (“Renault”) named HyVia, a French société par actions simplifiée (“HyVia”). HyVia plans to manufacture and sell fuel cell powered electric light commercial vehicles (“FCELCVs”) and to supply hydrogen fuel and fueling stations to support the FCE-LCV market, in each case primarily in Europe. HyVia is owned 50% by Plug Power France and 50% by Renault.
8
2. Summary of Significant Accounting Policies
Restatement
As previously disclosed in the Explanatory Note to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 10-K”), the Company restated its previously issued audited consolidated financial statements as of and for the years ended December 31, 2019 and 2018 and its unaudited interim condensed consolidated financial statements as of and for each of the quarterly periods ended March 31, 2020 and 2019, June 30, 2020 and 2019, September 30, 2020 and 2019 and December 31, 2019.
Previously filed annual reports on Form 10-K and quarterly reports on Form 10-Q for the periods affected by the restatement have not been amended. Accordingly, investors should not rely upon the Company’s previously released financial statements for these periods and any earnings releases or other communications relating to these periods, and, for these periods, investors should rely solely on the financial statements and other financial data for the relevant periods included in the 2020 10-K. Commencing with our quarterly report on Form 10-Q for the quarterly period ended March 31, 2021, we are including in our quarterly reports for fiscal 2021 restated results for the corresponding interim periods of fiscal 2020.
Principles of Consolidation
The unaudited interim condensed consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. In addition, we include our share of the results of our joint venture with Renault SAS (“Renault”) named HyVia, a French société par actions simplifiée (“HyVia”), AccionaPlug S.L., and SK Plug Hyverse Co., Ltd., using the equity method based on our economic ownership interest and our ability to exercise significant influence over the operating and financial decisions of HyVia.HyVia, AccionaPlug S.L., and SK Plug Hyverse Co., Ltd.
Interim Financial Statements
The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly, in accordance with U.S. generally accepted accounting principles (“GAAP”), the financial position, results of operations and cash flows for all periods presented, have been made. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.
Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s 2020 10-K.Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”).
The information presented in the accompanying unaudited interim condensed consolidated balance sheets as of December 31, 20202021 has been derived from the Company’s December 31, 20202021 audited consolidated financial statements.
There have been no changesThe unaudited interim condensed consolidated financial statements contained herein should be read in conjunction with our accounting policies from those reported in our 20202021 Form 10-K except for the adoption of Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), as described in the Recently Adopted Accounting Guidance section. We have also expanded our accounting policy relating to cash equivalents, and available-for-sale securities as follows:.
Cash Equivalents
The Company considers all highly-liquid debt securities with original maturities of three months or less to be cash equivalents. At June 30, 2021, cash equivalents consisted of commercial paper and U.S. Treasury securities with original maturities of three months or less, and money market funds. Due to their short-term nature, the carrying amounts reported in the unaudited interim condensed consolidated balance sheets approximate the fair value of cash and cash equivalents.
98
Available-for-sale securities
Available-for-sale securities is comprised of commercial paper with original maturities greater than three months, U.S. Treasury securities, municipal debt, certificates of deposit and corporate bonds. We consider these securities to be available for use in our current year operations, and therefore classify them as current even if we do not dispose of the securities in the following year.
Available-for-sale securities are recorded at fair value as of each balance sheet date. As of each balance sheet date, unrealized gains and losses, with the exception of credit related losses, are recorded to accumulated other comprehensive income. Any credit related losses are recognized as a credit loss allowance on the balance sheet with a corresponding adjustment to operations. Realized gains and losses are due to the sale and maturity of securities classified as available-for-sale and represent the net gain (loss) from accumulated other comprehensive income reclassifications for previously unrealized net gains on available-for-sale debt securities.
Equity securities
Equity securities are comprised of fixed income and equity market index mutual funds. Equity securities are valued at fair value with changes in the fair value recognized in our unaudited interim condensed consolidated statement of operations. We consider these securities to be available for use in our current year operations, and therefore classify them as current even if we do not dispose of the securities in the following year.
Recent Accounting Pronouncements
Recently Adopted Accounting Guidance
Other than the adoption of the accounting guidance mentioned in our 20202021 Form 10-K, and ASU 2020-06, there have been no other significant changes in our reported financial position or results of operations and cash flows resulting from the adoption of new accounting pronouncements.
On January 1, 2021, we early adopted ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) using the modified retrospective approach. Consequently, the Company’s 3.75% Convertible Senior Notes due 2025 (the “3.75% Convertible Senior Notes”) is now accounted for as a single liability measured at its amortized cost. This accounting change removed the impact of recognizing the equity component of the Company’s convertible notes at issuance and the subsequent accounting impact of additional interest expense from debt discount amortization. Future interest expense of the convertible notes will be lower as a result of adoption of this guidance and net loss per share will be computed using the if-converted method for convertible instruments. The cumulative effect of the accounting change upon adoption on January 1, 2021 increased the carrying amount of the 3.75% Convertible Senior Notes by $120.6 million, reduced accumulated deficit by $9.6 million and reduced additional paid-in capital by $130.2 million.
Recent Accounting Guidance Not Yet Effective
All issued but not yet effective accounting and reporting standards as of June 30, 20212022 are either not applicable to the Company or are not expected to have a material impact on the Company.
3. Acquisitions
Joule Processing LLC
On January 14, 2022, the Company acquired Joule Processing LLC (“Joule”), an engineered modular equipment, process design and procurement company founded in 2009.
The fair value of consideration paid by the Company in connection with the Joule acquisition was as follows (in thousands):
| | |
Cash | $ | 28,140 |
Contingent consideration | | 41,732 |
Total consideration | $ | 69,872 |
The contingent consideration represents the estimated fair value associated with earn-out payments of up to $130 million that the sellers are eligible to receive in cash or shares of the Company’s common stock (at the Company’s election). Of the total earnout consideration, $90 million is related to the achievement of certain financial performance and $40 million is related to the achievement of certain internal operational milestones.
The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):
| | |
Current assets | $ | 2,672 |
Property, plant and equipment | | 493 |
Right of use asset | | 182 |
Identifiable intangible assets | | 60,522 |
Lease liability | | (374) |
Current liabilities | | (2,612) |
Contract liability | | (3,818) |
Total net assets acquired, excluding goodwill | $ | 57,065 |
The preliminary allocation of the purchase price is still considered provisional due to the finalization of the valuation for the assets acquired and liabilities assumed in relation to the Joule acquisition. Therefore, the fair values of the assets acquired and liabilities assumed are subject to change as we obtain additional information for valuation assumptions such as market demand for Joule product lines to support forecasted revenue growth and the likelihood of achieving earnout milestones during the measurement period, which will not exceed 12 months from the date of acquisition. During the three months ended June 30, 2022, the Company recorded an adjustment to goodwill of $136 thousand due to the payment of a hold back liability related to the Joule acquisition and was recorded in accrued expenses in the unaudited interim condensed consolidated balance sheet.
9
The fair value of the developed technology totaling $59.2 million included in the identifiable intangible assets was calculated using the multi-period excess earnings method (“MPEEM”) approach which is a variant of the income approach. The basic principle of the MPEEM approach is that a single asset, in isolation, is not capable of generating cash flow for an enterprise. Several assets are brought together and exploited to generate cash flow. Therefore, to determine cash flow from the developed technology over its useful life of 15 years, one must deduct the related expenses incurred for the exploitation of other assets used for the generation of overall cash flow. The fair value of the tradename totaling $0.8 million was calculated using the relief from royalty approach which is a variant of the income approach, and was assigned a useful life of four years. The fair value of the non-compete agreements was $0.5 million with a useful life of six years.
In addition to identifiable intangible assets, the fair value of acquired work in process and finished goods inventory, included in inventory, was estimated based on the estimated selling price less costs to be incurred and a market participant profit rate.
In connection with the acquisition, the Company recorded on its consolidated balance sheet a liability of $41.7 million representing the fair value of contingent consideration payable, and is recorded in the unaudited interim condensed consolidated balance sheet in the loss accrual for service contracts and other liabilities. The fair value of this contingent consideration was remeasured to $36.9 million as of June 30, 2022, and as a result a $4.8 million reduction was recorded in the unaudited interim condensed consolidated statement of operations for the three and six months ended June 30, 2022.
Included in the purchase price consideration are contingent earn-out payments as described above. Due to the nature of the earn-outs, a scenario based analysis using the probability of achieving the milestone expectations was used to determine the fair value of the contingent consideration. These fair value measurements were based on unobservable inputs and are considered to be level 3 financial instruments.
The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. Goodwill associated with the Joule acquisition was calculated as follows (in thousands):
| | |
Consideration paid | $ | 28,140 |
Contingent consideration | | 41,732 |
Less: net assets acquired | | (57,065) |
Total goodwill recognized | $ | 12,807 |
The acquisition of Joule contributed $2.0 million and $3.3 million to total consolidated revenue for the three and six months ended June 30, 2022, respectively. The Company determined it impractical to report net loss for the Joule acquisition for the three and six months ended June 30, 2022.
Applied Cryo Technologies Acquisition
On November 22, 2021, the Company acquired 100% of the outstanding shares of Applied Cryo Technologies, Inc. (“Applied Cryo”). Applied Cryo is a manufacturer of engineered equipment servicing multiple applications, including cryogenic trailers and mobile storage equipment for the oil and gas markets and equipment for the distribution of liquified hydrogen, oxygen, argon, nitrogen, and other cryogenic gases.
10
The fair value of consideration paid by the Company in connection with the Applied Cryo acquisition was as follows (in thousands):
| | |
Cash | $ | 98,559 |
Plug Power Inc. Common Stock | | 46,697 |
Contingent consideration | | 14,000 |
Settlement of preexisting relationship | | 2,837 |
Total consideration | $ | 162,093 |
Included in the $98.6 million of cash consideration above, $5.0 million is consideration held by our paying agent in connection with the acquisition and is reported as restricted cash, with a corresponding accrued liability as of June 30, 2022 on the Company’s unaudited interim condensed consolidated balance sheet. We expect that this will be settled in the second half of 2022.
The contingent consideration represents the estimated fair value associated with earn-out payments of up to $30.0 million that the sellers are eligible to receive in cash or shares of the Company’s common stock (at the Company’s election). Of the total earnout consideration, $15.0 million is related to financial performance, and $15.0 million is related to internal operational milestones.
The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):
| | |
Cash | $ | 1,180 |
Accounts receivable | | 4,123 |
Inventory |
| 24,655 |
Prepaid expenses and other assets | | 1,506 |
Property, plant and equipment | | 4,515 |
Right of use asset | | 2,788 |
Identifiable intangible assets | | 70,484 |
Lease liability | | (2,672) |
Accounts payable, accrued expenses and other liabilities | | (7,683) |
Deferred tax liability | | (16,541) |
Deferred revenue | | (12,990) |
Total net assets acquired, excluding goodwill | $ | 69,365 |
The preliminary allocation of the purchase price is still considered provisional due to the tradename, technology, and customer relationship valuations. The Company continues to evaluate valuation assumptions such as the market demand for the Applied Cryo existing product lines to support forecasted revenue growth. Additionally, the Company continues to research the technology and buying power of Applied Cryo and evaluate the likelihood of achieving the additional production capacity needed in a timely manner to meet earnout milestones. During the three months ended June 30, 2022, the Company recorded a measurement period adjustment to goodwill of $0.5 million due to a release of escrow, which was recorded to accrued expenses in the unaudited interim condensed consolidated balance sheet. Any necessary adjustments will be finalized within one year from the date of acquisition.
Identifiable intangible assets consisted of developed technology, tradename, acquired customer relationships, non-compete agreements and backlog. The fair value of the developed technology totaling $26.3 million was calculated using the relief from royalty approach which is a variant of the income approach. The application of the relief from royalty approach involves estimating the value of an intangible asset by quantifying the present value of the stream of market derived royalty payments that the owner of the intangible asset is exempted or ‘relieved’ from paying. The developed technology has a useful life of 15 years. The fair value of the tradename totaling $13.7 million was calculated using the relief from royalty approach with a useful life of 15 years. The fair value of the acquired customer relationships totaling $26.6 million was calculated using the MPEEM approach and has a 15 year useful life. The fair value of the acquired
11
customer relationships was estimated by discounting the net cash flow derived from the expected revenues attributable to the acquired customer relationships. The fair value of the non-compete agreements was $1.0 million with a useful life of three years. The fair value of the customer backlog was $2.9 million with a useful life of one year.
In addition to identifiable intangible assets, the fair value of acquired work in process and finished goods inventory, included in inventory, was estimated based on the estimated selling price less costs to be incurred and a market participant profit rate.
Included in the purchase price consideration are contingent earn-out payments described above. Due to the nature of the earn-outs, a scenario based analysis using the probability of achieving the milestone expectations was used to value these contingent payments. These fair value measurements were based on unobservable inputs and are considered to be level 3 financial instruments.
In connection with the acquisition, the Company recorded on its consolidated balance sheet a liability of $14.0 million representing the fair value of contingent consideration payable. The fair value of this contingent consideration was remeasured as of June 30, 2022 and was $13.7 million as of June 30, 2022, and reductions of $0.4 million and $0.3 million was recorded in the unaudited interim condensed consolidated statement of operations for the three and six months ended June 30, 2022, respectively.
Included in Applied Cryo’s total net assets acquired, excluding goodwill, were net deferred tax liabilities of $16.5 million. In connection with the acquisition of these net deferred tax liabilities, the Company reduced its valuation allowance by $16.5 million and recognized a tax benefit $16.5 million during the year ended December 31, 2021.
The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. Goodwill associated with the Applied Cryo acquisition was calculated as follows (in thousands):
| | |
Consideration paid | $ | 162,093 |
Less: net assets acquired | | (69,365) |
Total goodwill recognized | $ | 92,728 |
The acquisition of Applied Cryo contributed $16.2 million and $33.1 million to total consolidated revenue for the three and six months ended June 30, 2022, respectively. The Company determined it impractical to report net loss for the Applied Cryo acquisition for the three and six months ended June 30, 2022.
Frames Holding B.V. Acquisition
On December 9, 2021, the Company acquired 100% of the outstanding shares of Frames Holding B.V. (“Frames”). Frames, a leading provider of turnkey hydrogen solutions.
The fair value of consideration paid by the Company in connection with the Frames acquisition was as follows (in thousands):
| | |
Cash | $ | 94,541 |
Contingent consideration | | 29,057 |
Settlement of preexisting relationship | | 4,263 |
Total consideration | $ | 127,861 |
The contingent consideration represents the estimated fair value associated with earn-out payments of up to €30.0 million that the sellers are eligible to receive in the form of cash. The contingent consideration is related to the achievement of certain internal operational targets during the four years following the closing date and is payable in 2 equal installments.
12
The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the total net assets acquired, excluding goodwill (in thousands):
| | |
Cash | $ | 45,394 |
Accounts receivable | | 17,910 |
Inventory |
| 34 |
Prepaid expenses and other assets | | 3,652 |
Property, plant and equipment | | 709 |
Right of use asset | | 1,937 |
Contract asset | | 9,960 |
Identifiable intangible assets | | 50,478 |
Lease liability | | (1,937) |
Contract liability | | (22,737) |
Accounts payable, accrued expenses and other liabilities | | (18,465) |
Deferred tax liability | | (11,259) |
Provision for loss contracts | | (2,636) |
Warranty provisions | | (7,566) |
Total net assets acquired, excluding goodwill | $ | 65,474 |
The preliminary allocation of the purchase price is still considered provisional due to outstanding customer valuation analysis. Identifiable intangible assets consisted of developed technology, tradename, acquired customer relationships, non-compete agreements and backlog. Any necessary adjustments will be finalized within one year from the date of acquisition. During the three months ended June 30, 2022, the Company recorded a measurement period adjustment to goodwill of $7.2 million due to the recording of the deferred tax treatment surrounding the tangible and intangible assets acquired, which was recorded to contingent consideration, loss accrual for service contracts, and other liabilities in the unaudited interim condensed consolidated balance sheet.
The fair value of the developed technology totaling $5.3 million was calculated using the relief from royalty approach which is a variant of the income approach, and it has a useful life of eight years. The fair value of the tradename totaling $11.6 million was calculated using the relief from royalty approach, and it has a useful life of eight years. The fair value of the acquired customer relationships totaling $27.2 million was calculated using the MPEEM approach which is a variant of the income approach, and it has a useful life of 17 years. The fair value of the customer relationships was estimated by discounting the net cash flow derived from the expected revenues attributable to the acquired customer relationships. The fair value of the non-compete agreements totaling $4.9 million was calculated using the with and without income approach, and it has a useful life of approximately four years. The fair value of the backlog was $1.4 million, and it has a useful life of one year.
Included in the purchase price consideration are contingent earn-out payments described above. Due to the nature of the earn-outs, a scenario based analysis using the probability of achieving the milestone expectations was used to determine the fair value of the contingent consideration. These fair value measurements were based on unobservable inputs and are considered to be level 3 financial instruments.
In connection with the acquisition, the Company recorded on its consolidated balance sheet a liability of $29.1 million representing the fair value of contingent consideration payable. The fair value of this contingent consideration was remeasured as of June 30, 2022 and was $28.0 million as of June 30, 2022. The change in fair value decline was partially due to a change in the foreign currency translation, partially offset by an increase in the liability. The Company recorded an adjustment of $1.4 million and $1.1 million for the three and six months ended June 30, 2022 in the unaudited interim condensed consolidated statement of operations.
Included in Frames’ total net assets acquired, excluding goodwill, are net deferred tax liabilities of $4.1 million.
13
The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. Goodwill associated with the Frames acquisition was calculated as follows (in thousands):
| | |
Consideration paid | $ | 127,861 |
Less: net assets acquired | | (65,474) |
Total goodwill recognized | $ | 62,387 |
The above estimates are preliminary in nature and subject to adjustments. Any necessary adjustments will be finalized within one year from the date of acquisition. Substantially all the receivables acquired are expected to be collectable. Purchased goodwill is not expected to be deductible for tax purposes.
The acquisition of Frames contributed $28.6 million and $50.5 million to total consolidated revenue for the three and six months ended June 30, 2022, respectively. The following table reflects the unaudited pro forma results of operations for the six months ended June 30, 2021 assuming that the Frames acquisition had occurred on January 1, 2021 (in thousands):
| | | | | |
| Three Months Ended | | Six Months Ended | ||
| June 30, 2021 | | June 30, 2021 | ||
Revenue | $ | 14,397 | | $ | 31,804 |
Net income | $ | 879 | | $ | 1,034 |
The unaudited pro forma net income for the three and six months ended June 30, 2021 have been adjusted to reflect increased amortization of intangibles as if the acquisition had occurred on January 1, 2021. The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of the actual results that would have been achieved had the Frames acquisition occurred as of January 1, 2021 or indicative of the results that may be achieved in future periods.
None of the Joule and Applied Cryo Technologies acquisition was material to our consolidated results of operations or financial position and, therefore, pro forma financial information is not presented.
4. Extended Maintenance Contracts
On a quarterly basis, we evaluate any potential losses related to our extended maintenance contracts for fuel cell systems and related infrastructure that hashave been sold. We measure impairment losses at the customer contract level. The expected revenues and expenses for these contracts include all applicable expected costs of providing services over the remaining term of the contracts and the related unearned net revenue. A loss is recognized if the sum of expected costs of providing services under the contract exceeds related unearned net revenue and is recorded as a provision for loss contracts related to service in the consolidated statements of operations. A key component of these estimates is the expected future service costs. In estimating the expected future costs, the Company considers its current service cost level and applies significant judgment related to expected cost saving initiatives. The expected future cost savings will be primarily dependent upon the success of the Company’s initiatives related to increasing stack life, achieving better economies of
10
scale for service labor, and improvements in design and operations of infrastructure. If the expected cost saving initiatives are not realized, this will increase the costs of providing services and could adversely affect our estimated contract loss accrual.
The following table shows the rollforward of balance in the accrual for loss contracts, including changes due to the passageprovision for loss accrual, loss accrual from acquisition, releases to service cost of time, additions,sales, and changes in estimatesreleases due to the provision for warrants (in thousands):
| | | | | |
| Six months ended | | Year ended | ||
| June 30, 2021 | | December 31, 2020 | ||
Beginning Balance | $ | 24,013 | | $ | 3,702 |
Provision for Loss Accrual | | 8,179 | | | 35,473 |
Released to Service Cost of Sales | | (3,780) | | | (2,348) |
Released to Provision for Warrants | | — | | | (12,814) |
Ending Balance | $ | 28,412 | | $ | 24,013 |
| | | | | |
| Six months ended | | Year ended | ||
| June 30, 2022 | | December 31, 2021 | ||
Beginning balance | $ | 89,773 | | $ | 24,013 |
Provision for loss accrual | | 3,116 | | | 71,988 |
Loss accrual from acquisition | | — | | | 2,636 |
Releases to service cost of sales | | (21,247) | | | (8,864) |
Foreign currency translation adjustment | | (103) | | | — |
Ending balance | $ | 71,539 | | $ | 89,773 |
4.5. Earnings Per Share
Basic earnings per common stock are computed by dividing net loss attributable to common stockholders by the weighted average number of common stock outstanding during the reporting period. After January 1, 2021, the date of the adoption of ASU 2020-06, inIn periods when we have net income, the shares of our common stock subject to the convertible notes outstanding during the period will be included in our diluted earnings per share under the if-converted method. Since the Company is in a net loss position, all common stock
14
equivalents would be considered anti-dilutive and are therefore not included in the determination of diluted earnings per share. Accordingly, basic and diluted loss per share are the same.
The potentially dilutive securities are summarized as follows:
| | | | | | | | |
| | At June 30, | | At June 30, | ||||
|
| 2021 |
| 2020 |
| 2022 |
| 2021 |
Stock options outstanding (1) | | 9,165,066 |
| 16,273,120 | | 24,184,619 |
| 9,165,066 |
Restricted stock outstanding (2) | | 6,511,808 |
| 4,455,484 | | 5,616,280 |
| 6,511,808 |
Common stock warrants (3) | | 83,518,821 | | 110,573,392 | | 80,017,181 | | 83,518,821 |
Convertible Senior Notes (4) | | 39,170,766 |
| 72,872,730 | | 39,170,766 |
| 39,170,766 |
Number of dilutive potential shares of common stock | | 138,366,461 |
| 204,174,726 | | 148,988,846 |
| 138,366,461 |
(1) | During the three months ended June 30, |
(2) | During the three months ended June 30, |
(3) | In April 2017, the Company issued a warrant to acquire up to 55,286,696 shares of the Company’s common stock as part of a transaction agreement with Amazon, subject to certain vesting events, as described in Note 12, “Warrant Transaction Agreements.” The warrant had been exercised with respect to 17,461,994 and 13,960,354 shares of the Company’s common stock as of June 30, |
In July 2017, the Company issued a warrant to acquire up to 55,286,696 shares of the Company’s common stock as part of a transaction agreement with Walmart, subject to certain vesting events, as described in Note 12, “Warrant Transaction Agreements.” The warrant had been exercised with respect to 13,094,217 shares of the Company’s common stock as of June 30, 2022 and 2021.
(4) | In March 2018, the Company issued $100.0 million in aggregate principal amount of the 5.5% Convertible Senior Notes due 2023 (the “5.5% Convertible Senior Notes”). In May 2020, the Company repurchased $66.3 million of the 5.5% Convertible Senior Notes and in the fourth quarter of 2020, $33.5 million of the 5.5% Convertible Senior Notes were converted into approximately 14.6 million shares of common stock. The remaining $0.2 million aggregate principal amount of the 5.5% Convertible Senior Notes were converted into 69,808 shares of common stock in January 2021. In September 2019, the Company issued $40.0 million in aggregate principal amount of the 7.5% Convertible Senior Note due 2023 (the “7.5% Convertible Senior Note”), which was fully converted into 16.0 million shares of common stock on July 1, 2020. In May 2020, |
11
the Company issued |
Million of
15
6. Inventory
Inventory as of June 30, 2022 and December 31, 2021 consisted of the following (in thousands):
| | | | | | | |
|
| June 30, |
| December 31, |
| ||
| | 2022 | | 2021 | | ||
Raw materials and supplies - production locations | | $ | 321,261 | | $ | 187,449 | |
Raw materials and supplies - customer locations | | | 13,629 | | | 16,294 | |
Work-in-process | |
| 86,235 | |
| 58,341 | |
Finished goods | |
| 8,424 | |
| 7,079 | |
Inventory | | $ | 429,549 | | $ | 269,163 | |
5. Inventory
Inventory as of June 30, 2021 and December 31, 2020 consisted of the following (in thousands):
| | | | | | | |
|
| June 30, |
| December 31, |
| ||
| | 2021 | | 2020 | | ||
Raw materials and supplies - production locations | | $ | 131,932 | | $ | 92,221 | |
Raw materials and supplies - customer locations | | | 14,096 | | | 12,405 | |
Work-in-process | |
| 58,147 | |
| 29,349 | |
Finished goods | |
| 5,645 | |
| 5,411 | |
Inventory | | $ | 209,820 | | $ | 139,386 | |
6. Equipment Related to Power Purchase Agreements and Fuel Delivered to Customers, net
Equipment related to power purchase agreements and fuel delivered to customers, net at June 30, 2021 and December 31, 2020 consisted of the following (in thousands):
| | | | | | | |
|
| June 30, |
| December 31, |
| ||
| | 2021 | | 2020 |
| ||
Equipment related to power purchase agreements and fuel delivered to customers | | $ | 97,547 | | $ | 92,736 | |
Less: accumulated depreciation | | | (18,629) | | | (16,929) | |
Equipment related to power purchase agreements and fuel delivered to customers, net | | | 78,918 | | | 75,807 | |
As of June 30, 2021, the Company had deployed long-lived assets at customer sites that had associated Power Purchase Agreements (“PPAs”). These PPAs expire over the next one to ten years. PPAs contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote.
Depreciation expense was $2.0 million and $2.2 million for the three months ended June 30, 2021 and 2020, respectively. Depreciation expense was $3.8 million and $4.3 million for the six months ended June 30, 2021 and 2020, respectively.
The Company terminated its contractual relationship with a fuel provider effective March 31, 2021. The Company has historically leased fuel tanks from this provider. As a result of this termination, the Company recognized various costs, primarily for removal of tanks, reimbursement of unamortized installation costs, costs to temporarily provide customers with fuel during the transition period, and certain other contract settlement costs. These costs amounted to approximately $16.0 million for the six months ended June 30, 2021, which are recorded in the Company’s unaudited interim condensed consolidated statement of operations as cost of revenue – fuel delivered to customers for the six months ended June 30, 2021. The Company also purchased certain fuel tanks from the fuel provider during the three months ended June 30, 2021.
7. Property, Plant and Equipment
Property, plant and equipment at June 30, 20212022 and December 31, 2020 consists2021 consisted of the following (in thousands):
| | | | | | |
| | June 30, 2021 | | December 31, 2020 | ||
Land | | | 1,165 | | | 1,165 |
Leasehold improvements | | $ | 1,401 | | $ | 1,121 |
| | | | | | |
| | June 30, 2022 | | December 31, 2021 | ||
Land | | $ | 1,165 | | $ | 1,165 |
Construction in progress | | | 332,982 | | | 169,415 |
Leasehold improvements | | | 2,895 | | | 2,099 |
Software, machinery, and equipment | |
| 131,699 | |
| 112,068 |
Property, plant, and equipment | |
| 468,741 | |
| 284,747 |
Less: accumulated depreciation | |
| (37,249) | |
| (29,124) |
Property, plant, and equipment, net | | $ | 431,492 | | $ | 255,623 |
12
TableConstruction in progress is primarily comprised of Contentsconstruction of 5 hydrogen production plants and the Gigafactory in Rochester, NY. Completed assets are transferred to their respective asset classes, and depreciation begins when an asset is ready for its intended use. Interest on outstanding debt is capitalized during periods of capital asset construction and amortized over the useful lives of the related assets. During the three and six months ended June 30, 2022, the Company capitalized $1.5 million and $5.8 million of interest, respectively.
Software, machinery and equipment | |
| 133,349 | |
| 94,449 |
Property, plant, and equipment | |
| 135,915 | |
| 96,735 |
Less: accumulated depreciation | |
| (25,440) | |
| (22,186) |
Property, plant, and equipment, net | | $ | 110,475 | | $ | 74,549 |
Depreciation expense related to property, plant and equipment was $1.6$5.5 million and $0.9$1.6 million for the three months ended June 30, 20212022 and 2020,2021, respectively. Depreciation expense related to property, plant and equipment was $3.3$8.1 million and $1.8$3.3 million for the six months ended June 30, 2022 and 2021, and 2020, respectively.
8. Intangible Assets and Goodwill
The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of June 30, 2022 were as follows (in thousands):
| | | | | | | | | | | | |
| | Weighted Average | | Gross Carrying | | Accumulated | | | | | ||
| | Amortization Period | | Amount | | Amortization | | Total |
| |||
Acquired technology |
| 14 years |
| $ | 104,062 | | $ | (8,877) | | $ | 95,185 | |
Dry stack electrolyzer technology | | 10 years | | | 29,000 | | | (967) | | | 28,033 | |
Customer relationships, Non-compete agreements, Backlog & Trademark | | 12 years | |
| 88,345 | | | (7,350) | | | 80,995 | |
| | | | $ | 221,407 | | $ | (17,194) | | $ | 204,213 | |
16
8. Intangible Assets and Goodwill
The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of June 30, 2021 were as follows (in thousands):
| | | | | | | | | | | | |
| | Weighted Average | | Gross Carrying | | Accumulated | | | | | ||
| | Amortization Period | | Amount | | Amortization | | Total |
| |||
Acquired technology |
| 10 years |
| $ | 13,150 | | $ | (4,624) | | $ | 8,526 | |
Customer relationships, Non-compete agreements, Backlog & Trademark | | 6 years | |
| 890 | | | (364) | | | 526 | |
In process research and development |
| Indefinite | | | 29,000 | | | — | | | 29,000 | |
| | | | $ | 43,040 | | $ | (4,988) | | $ | 38,052 | |
The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of December 31, 20202021 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | ||
| | Weighted Average | | Gross Carrying | | Accumulated | | | | | | Weighted Average | | Gross Carrying | | Accumulated | | | | | ||||
| | Amortization Period | | Amount | | Amortization | | Total |
| | Amortization Period | | Amount | | Amortization | | Total |
| ||||||
Acquired technology |
| 10 years | | $ | 13,697 | | $ | (4,042) | | $ | 9,655 | |
| 13 years | | $ | 45,530 | | $ | (5,392) | | $ | 40,138 | |
Customer relationships, Non-compete agreements, Backlog & Trademark | | 6 years | | 890 | | | (294) | | | 596 | | | 12 years | | 90,497 | | | (1,427) | | | 89,070 | | ||
In process research and development |
| Indefinite | |
| 29,000 | | | — | |
| 29,000 | |
| Indefinite | |
| 29,000 | | | — | |
| 29,000 | |
| | | | $ | 43,587 | | $ | (4,336) | | $ | 39,251 | | | | | $ | 165,027 | | $ | (6,819) | | $ | 158,208 | |
The change in the gross carrying amount of the acquired technology from December 31, 20202021 to June 30, 20212022 was primarily due to the acquisition of Joule, the addition of the dry build electrolyzer stack related to the Giner ELX acquisition, and changes in foreign currency translation.
Amortization expense for acquired identifiable intangible assets for the three months ended June 30, 2022 and 2021 and 2020 was $0.4$5.2 million and $0.2$0.4 million, respectively. Amortization expense for acquired identifiable intangible assets for the six months ended June 30, 2022 and 2021 was $10.4 million and 2020 was $0.7 million, and $0.4 million, respectively.
The estimated amortization expense for subsequent years is as follows (in thousands):
| | | | | | |
Remainder of 2021 |
| $ | 732 | |||
2022 | | | 1,463 | |||
Remainder of 2022 |
| $ | 10,730 | |||
2023 | | | 1,463 | | | 17,990 |
2024 | | | 1,442 | | | 17,933 |
2025 and thereafter | | | 3,952 | |||
2025 | | | 17,175 | |||
2026 | | | 15,691 | |||
2027 and thereafter | | | 124,694 | |||
Total | | $ | 9,052 | | $ | 204,213 |
Goodwill was $72.1 million and $72.4 million asThe change in the carrying amount of June 30, 2021 and December 31, 2020, respectively, which decreased $304 thousand due to currency translation lossgoodwill for HyPulsion S.A.S., our French subsidiary. There were 0 impairments during the six monthsmonth period ended June 30, 2021 or the year ended December 31, 2020.2022 was as follows (in thousands):
13
| | | |
Beginning balance at December 31, 2021 | | $ | 220,436 |
Acquisitions | | | 12,943 |
Measurement period adjustments | | | 6,496 |
Foreign currency translation adjustment | |
| (4,849) |
Ending balance at June 30, 2022 | | $ | 235,026 |
9. Long-Term Debt
In March 2019, the Company entered into a loan and security agreement, as amended (the “Loan Agreement”), with Generate Lending, LLC (“Generate Capital”), providing for a secured term loan facility in the amount of $100 million (the “Term Loan Facility”).
During the year ended December 31, 2020, the Company, under another series of amendments to the Loan Agreement, borrowed an incremental $100.0 million. As part of the amendment to the Loan Agreement, the Company’s interest rate on the secured term loan facility was reduced to 9.50% from 12.00% per annum, and the maturity date was extended to October 31, 2025 from October 6, 2022. On June 30, 2021,2022, the outstanding balance under the Term Loan Facility was $150.8$83.3 million. In addition toThe carrying value of the Term Loan Facility on June 30, 2021 there was approximately $10.0 million of debt related to United Hydrogen Group, Inc. acquisition.approximates fair value.
The Loan Agreement includes covenants, limitations, and events of default customary for similar facilities. Interest and a portion of the principal amount is payable on a quarterly basis. Principal payments are funded in part by releases of restricted cash, as described in Note 19, “Commitments and Contingencies.” Based on the amortization schedule as of June 30, 2021,2022, the aforementioned loan balance under the Term Loan Facility will be fully paid by October 31, 2025. TheAt June 30, 2022, the Company iswas in compliance with or has obtained waivers for, all debt covenants. covenants under the Term Loan Facility.
The Term Loan Facility is secured by substantially all of the Company’s and the guarantor subsidiaries’ assets, including, among other assets, all intellectual property, all securities in domestic subsidiaries and 65% of the securities in foreign subsidiaries, subject to certain exceptions and exclusions.
The Loan Agreement provides that if there is an event17
As of June 30, 2021, the Term Loan Facility requires the principal balance as of each of the following dates not to exceed the following (in thousands):
| | |
December 31, 2021 | $ | 127,317 |
December 31, 2022 | | 93,321 |
December 31, 2023 | | 62,920 |
December 31, 2024 | | 33,692 |
December 31, 2025 | | — |
10. Convertible Senior Notes
3.75% Convertible Senior Notes
On May 18, 2020, the Company issued $200.0 million in aggregate principal amount of 3.75% Convertible Senior Notes due June 1, 2025, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (“the Securities(the “Securities Act”). On May 29, 2020, the Company issued an additional $12.5 million in aggregate principal amount of 3.75% Convertible Senior Notes.
At issuance in May 2020, the total net proceeds from the 3.75% Convertible Senior Notes were as follows:
| | |
| Amount | |
| (in thousands) | |
Principal amount | $ | 212,463 |
14
Less initial purchasers' discount | | (6,374) |
Less cost of related capped calls | | (16,253) |
Less other issuance costs | | (617) |
Net proceeds | $ | 189,219 |
The 3.75% Convertible Senior Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020. The notes will mature on June 1, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms.
The 3.75% Convertible Senior Notes are senior, unsecured obligations of the Company and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the notes, equal in right of payment to any of the Company’s existing and future liabilities that are not so subordinated, including the Company’s $100 million in aggregate principal amount of the 5.5% Convertible Senior Notes, effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the collateral securing such indebtedness, and structurally subordinated to all indebtedness and other liabilities, including trade payables, of its current or future subsidiaries.
Holders of the 3.75% Convertible Senior Notes may convert their notes at their option at any time prior to the close of the business day immediately preceding December 1, 2024 in the following circumstances:
On or after December 1, 2024, the holders of the 3.75% Convertible Senior Notes may convert all or any portion of their notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.
The initial conversion rate for the 3.75% Convertible Senior Notes is 198.6196 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $5.03 per share of the Company’s common stock, subject to adjustment upon the occurrence of specified events. Upon conversion, the Company will pay or deliver, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. During the three months ended June 30, 2021, certain conditions allowing holders of the 3.75% Convertible Senior Notes to convert were met. The 3.75% Convertible Senior Notes are therefore convertible during the calendar quarter ending September 30, 2021 at the conversion rate discussed above. During theand six months ended June 30, 2021, $15.2 million of the 3.75% Convertible Senior Notes2022, there were converted and the Company issued 3.0 million shares of common stock in conjunction with these conversions.
15
In addition, following certain corporate events or following issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event or convert its notes called for redemption during the related redemption period in certain circumstances.
The 3.75% Convertible Senior Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after June 5, 2023 and before the 41st scheduled trading day immediately before the maturity date, at a cash redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the three trading days immediately preceding the date the Company sends the related redemption notice, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company sends such redemption notice.
If the Company undergoes a “fundamental change” (as defined in the Indenture), holders may require the Company to repurchase their notes for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, to, but excluding, the fundamental change repurchase date.
The Company accounts for the 3.75% Convertible Senior Notes as a liability. We incurred transaction costs related to the issuance of the 3.75% Convertible Senior Notes of approximately $7.0 million, consisting of initial purchasers’ discount of approximately $6.4 million and other issuance costs of $0.6 million which were recorded as debt issuance cost (presented as contra debt in the unaudited interim condensed consolidated balance sheets) and are being amortized to interest expense over the term0 conversions of the 3.75% Convertible Senior Notes.
The 3.75% Convertible Senior Notes consisted of the following (in thousands):
| | | | | | |
| June 30, | | June 30, | |||
| 2021 | | 2022 | |||
Principal amounts: | | | | | | |
Principal | $ | 197,278 | | $ | 197,278 | |
Unamortized debt issuance costs (1) | | (5,267) | | | (4,009) | |
Net carrying amount | $ | 192,011 | | $ | 193,269 |
1) | Included in the unaudited interim condensed consolidated balance sheets within the 3.75% Convertible Senior Notes, net and amortized over the remaining life of the notes using the effective interest rate method. |
The following table summarizes the total interest expense and effective interest rate related to the 3.75% Convertible Senior Notes (in thousands, except for effective interest rate):
| | | | | | | | | |
| June 30, | | June 30, | | | June 30, | | ||
| 2021 |
| 2022 |
| | 2021 | | ||
Interest expense | $ | 1,850 | | $ | 1,849 | | $ | 1,850 | |
Amortization of debt issuance costs | | 306 | | | 320 | | | 306 | |
Total | | 2,156 | | | 2,169 | | | 2,156 | |
| | | | | | | | | |
Effective interest rate | | 4.50% | | | 4.5% | | | 4.5% | |
Based on the closing price of the Company’s common stock of $34.19$16.57 on June 30, 2021,2022, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at June 30, 20212022 was approximately $1.3 billion.$700 million. The fair value estimation was primarily based on an active stock exchange trade on June 24, 202114, 2022 of the 3.75% Convertible Senior Convertible Note.Notes. See Note 15, “Fair Value Measurements,” for a description of the fair value hierarchy.
Capped Call
In conjunction with the pricing of the 3.75% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “3.75% Notes Capped Call”) with certain counterparties at a price of $16.2 million.
16
The 3.75% Notes Capped Call covers, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that underlie the initial 3.75% Convertible Senior Notes and is generally expected to reduce potential dilution to the Company’s common stock upon any conversion of the 3.75% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 3.75% Notes Capped Call is initially $6.7560 per share, which represents a premium of approximately 60% over the last then-reported sale price of the Company’s common stock of $4.11 per share on the date of the transaction and is subject to certain adjustments under the terms of the 3.75% Notes Capped Call. The 3.75% Notes Capped Call becomes exercisable if the conversion option is exercised.
The net cost incurred in connection with the 3.75% Notes Capped Call were recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets. The book value of the 3.75% Notes Capped Call is not remeasured.
18
5.5% Convertible Senior NotesCommon Stock Forward
In March 2018, the Company issued $100.0 million in aggregate principal amount of the 5.5% Convertible Senior Notes due on March 15, 2023, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
In May 2020, the Company used a portion of the net proceeds from the issuance of the 3.75% Convertible Senior Notes to finance the cash portion of the partial repurchase of the 5.5% Convertible Senior Notes,Act, which consisted of a repurchase of approximately $66.3 million in aggregate principal amount of the 5.5% Convertible Senior Notes in privately-negotiated transactions for aggregate consideration of $128.9 million, consisting of approximately $90.2 million in cash and approximately 9.4 million shares of the Company’s common stock. The partial repurchase of the 5.5% Convertible Senior Notes resulted in a $13.2 million gain on early debt extinguishment. In the fourth quarter of 2020, $33.5 million of the remaining 5.5% Convertible Senior Notes werehave been fully converted into 14.6 million shares of common stock which resulted in a gain of approximately $4.5 million which was recorded on the consolidated statement of operations on the gain (loss) on extinguishment of debt line.
On January 7, 2021, the remaining aggregate principal of $160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes were converted into 69,808 shares of common stock. Interest expense and amortization for the period were immaterial.
Capped Call
In conjunction with the pricing of the 5.5% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “5.5% Notes Capped Call”) with certain counterparties at a price of $16.0 million to reduce the potential dilution to the Company’s common stock upon any conversion of the 5.5% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 5.5% Convertible Senior Notes, as the case may be. The net cost incurred in connection with the 5.5% Notes Capped Call has been recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets.
In conjunction with the pricing of the partial repurchase of the 5.5% Convertible Senior Notes, the Company terminated 100% of the 5.5% Notes Capped Call on June 5, 2020. As a result of the termination, the Company received $24.2 million, which was recorded in additional paid-in capital in the unaudited interim condensed consolidated balance sheets.
Common Stock Forward
In connection with the issuance of the 5.5% Convertible Senior Notes, the Company also entered into a forward stock purchase transaction (“the Common(the “Common Stock Forward”), pursuant to which the Company agreed to purchase 14,397,906 shares of its common stock for settlement on or about March 15, 2023. In connection with the issuance of the 3.75% Convertible Senior Notes and the partial repurchase of the 5.5% Convertible Senior Notes,On May 18, 2020, the Company amended and extended the maturity of the Common Stock Forward to June 1, 2025. The number of shares of common stock that
17
the Company will ultimately repurchase under the Common Stock Forward is subject to customary anti-dilution adjustments. The Common Stock Forward is subject to early settlement or settlement with alternative consideration in the event of certain corporate transactions.
The net cost incurred in connection with the Common Stock Forward of $27.5 million was recorded as an increase in treasury stock in the unaudited interim condensed consolidated balance sheets. The related shares were accounted for as a repurchase of common stock.
The book value of the 5.5% Notes Capped Call and Common Stock Forward areis not remeasured.
There were 0 shares of common stock settled in connection with the Common Stock Forward during the three and six months ended June 30, 2022. During the fourth quarter of 2020,three and six months ended June 30, 2021, the Common Stock Forward was partially settled and as a result, the Company received 4.42.2 million shares of its common stock. During the first quarter of 2021, 5.9and 8.1 million shares settled and were received by the Company. During the second quarter of 2021, an additional 2.2 million shares were settled and received by the Company.Company, respectively.
11. Stockholders’ Equity
Preferred Stock
The Company has authorized 5.0 million shares of preferred stock, par value $0.01 per share. The Company’s certificate of incorporation provides that shares of preferred stock may be issued from time to time in one or more series. The Company’s Board of Directors is authorized to fix the voting rights, if any, designations, powers, preferences, qualifications, limitations and restrictions thereof, applicable to the shares of each series.
The Company has authorized Series A Junior Participating Cumulative Preferred Stock, par value $0.01 per share. As of June 30, 2021 and December 31, 2020, there were 0 shares of Series A Junior Participating Cumulative Preferred Stock issued and outstanding.
Common Stock and Warrants
The Company has one class of common stock, par value $0.01 per share. Each share of the Company’s common stock is entitled to 1 vote on all matters submitted to stockholders.
In February 2021, the Company completed the previously announceda sale of its common stock in connection with a strategic partnership with SK Holdings Co., Ltd. (“SK Holdings”) to accelerate the use of hydrogen as an alternative energy source in Asian markets. The Company sold 54,966,188 shares of its common stock to a subsidiary of SK Holdings at a purchase price of $29.2893 per share, or an aggregate purchase price of approximately $1.6 billion.
In January and February 2021, the Company issued and sold in a registered equity offering an aggregate of 32.2 million shares of its common stock at a purchase price of $65.00 per share for net proceeds of approximately $1.8$2.0 billion.
In November 2020, the Company issued and sold in a registered equity offering an aggregate of 43,700,000 shares of its common stock at a purchase price of $22.25 per share for net proceeds of approximately $927.3 million.
In August 2020, the Company issued and sold in a registered equity offering an aggregate of 35,276,250 shares of its common stock at a purchase price of $10.25 per share for net proceeds of approximately $344.4 million.
There were 570,922,157 and 458,051,401 shares of common stock outstanding as of June 30, 2021 and December 31, 2020, respectively.
During 2017, warrants to purchase up to 110,573,392 shares of common stock were issued in connection with transaction agreements with Amazon and Walmart, as discussed in Note 12, “Warrant Transaction Agreements.” At both June 30, 20212022 and December 31, 2020, a total2021, 75,655,478 of 68,380,913 warrantsthe warrant shares had vested. Warrantsvested, and were exercised with respect to
18
5,819,652 shares during the fourth quarter of 2020. In the first quarter of 2021, warrants were exercised with respect to 16,489,014 shares of common stock. In the second quarter of 2021, warrants were exercised with respect to an additional 4,745,905 shares of common stock.therefore exercisable. These warrants are measured at fair value at the time of grant or modification and are classified as equity instruments on the unaudited interim condensed consolidated balance sheets.
At Market Issuance Sales Agreement
On April 13, 2020, the Company entered into the At Market Issuance Sales Agreement with B. Riley Financial (“B. Riley”), as sales agent, pursuant to which the Company may offer and sell, from time to time through B. Riley, shares of Company common stock having an aggregate offering price of up to $75.0 million. As of the date of this filing, the Company has not issued any shares of common stock pursuant to the At Market Issuance Sales Agreement.
12. Warrant Transaction Agreements
Amazon Transaction Agreement
On April 4, 2017, the Company and Amazon entered into a Transaction Agreement (the “Amazon Transaction Agreement”), pursuant to which the Company agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon, a warrant (the “Amazon Warrant”) to acquire up to 55,286,696 shares of the Company’s common stock (the “Amazon Warrant Shares”), subject to certain vesting events described below. The Company and Amazon entered into the Amazon Transaction Agreement in connection with existing commercial agreements between the Company and Amazon with respect to the deployment of the Company’s GenKey (defined below) fuel cell technology
19
at Amazon distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. The vesting of the Amazon Warrant Shares was conditioned upon payments made by Amazon or its affiliates (directly or indirectly through third parties) pursuant to the existing commercial agreements.
Under the termsThe warrant had been exercised with respect to 17,461,994 shares of the original Amazon Warrant, the first trancheCompany’s common stock as of the 5,819,652 Amazon Warrant Shares vested upon execution of the Amazon Warrant,June 30, 2022 and the remaining Amazon Warrant Shares vest based on Amazon’s payment of up to $600.0 million to the Company in connection with Amazon’s purchase of goods and services from the Company. The $6.7 million fair value of the first tranche of the Amazon Warrant Shares, was recognized as selling, general and administrative expense upon execution of the Amazon Warrant.
Provision for the second and third tranches of Amazon Warrant Shares is recorded as a reduction of revenue, because they represent consideration payable to a customer.
The fair value of the second tranche of Amazon Warrant Shares was measured at January 1, 2019, upon adoption of ASU 2019-08. The second tranche of 29,098,260 Amazon Warrant Shares vested in 4 equal installments, as Amazon or its affiliates, directly or indirectly through third parties, made an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $200.0 million in the aggregate. The last installment of the second tranche vested on November 2, 2020. Revenue reductions of $9.0 million, $4.1 million and $9.8 million associated with the second tranche of Amazon Warrant Shares were recorded in 2020, 2019 and 2018, respectively, under the terms of the original Amazon Warrant.
Under the terms of the original Amazon Warrant, the third tranche of 20,368,784 Amazon Warrant Shares vests in 8 equal installments, as Amazon or its affiliates, directly or indirectly through third parties, made an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The measurement date for the third tranche of Amazon Warrant Shares was November 2, 2020, when their exercise price was determined, as discussed further below. The fair value of the third tranche of Amazon Warrant Shares was determined to be $10.57 each. During 2020, revenue reductions of $24.1 million associated with the third tranche Amazon Warrant Shares were recorded under the terms of the original Amazon Warrant, prior to the December 31, 2020 waiver described below.
On December 31, 2020, the Company waived the remaining vesting conditions under the Amazon Warrant, which resulted in the immediate vesting of all the third tranche of the Amazon Warrant Shares and recognition of an additional $399.7 million reduction to revenue.
19
The $399.7 million reduction to revenue resulting from the December 31, 2020 waiver was determined based upon a probability assessment of whether the underlying shares would have vested under the terms of the original Amazon Warrant. Based upon the Company’s projections of probable future cash collections from Amazon (i.e., a Type I share based payment modification), a reduction of revenue associated with 5,354,905 Amazon Warrant Shares was recognized at their previously measured November 2, 2020 fair value of $10.57 per warrant. A reduction of revenue associated with the remaining 12,730,490 Amazon Warrant Shares was recognized at their December 31, 2020 fair value of $26.95 each, based upon the Company’s assessment that associated future cash collections from Amazon were not deemed probable (i.e., a Type III share based payment modification).
The $399.7 million reduction to revenue was recognized during the year ended December 31, 2020 because the Company concluded such amount was not recoverable from the margins expected from future purchases by Amazon under the Amazon Warrant, and no exclusivity or other rights were conferred to the Company in connection with the December 31, 2020 waiver. Additionally, for the year ended December 31, 2020, the Company recorded a reduction to the provision for warrants of $12.8 million in connection with the release of the service loss accrual. 2021.
At December 31, 2020,2021, all 55,286,696 of the Amazon Warrant Shares had vested. For service contracts entered into prior to December 31, 2020, the warrant charge associated with that revenue was capitalized and is subsequently amortized over the life of the service contract. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three months ended June 30, 2022 and 2021 was $0.1 million and 2020 was $105 thousand and $3.4$0.1 million, respectively. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the six months ended June 30, 2022 and 2021 was $0.2 million and 2020 was $209 thousand and $4.7$0.2 million, respectively. During the three months ended March 31, 2021 and June 30, 2021, the Amazon Warrant was exercised with respect to 9,214,449 shares of common stock and 4,745,905 shares of common stock. In July 2021, the Amazon Warrant was exercised with respect to an additional 3,501,640 shares of common stock.
The exercise price for the first and second tranches of Amazon Warrant Shares was $1.1893 per share. The exercise price of the third tranche of Amazon Warrant Shares was $13.81 per share, which was determined pursuant to the terms of the Amazon Warrant as an amount equal to 90 percent (90%) of the 30-day volume weighted average share price of the Company’s common stock as of November 2, 2020, the final vesting date of the second tranche of Amazon Warrant Shares. The Amazon Warrant is exercisable through April 4, 2027. The Amazon Warrant provides for net share settlement that, if elected by the holder, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Amazon Warrant provides for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. The Amazon Warrant is classified as an equity instrument.
Fair value of the Amazon Warrant at December 31, 2020 and November 2, 2020 was based on the Black Scholes Option Pricing Model, which is based, in part, upon level 3 unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions.
The Company used the following assumptions for its Amazon Warrant:
| | | | |
| | December 31, 2020 | | November 2, 2020 |
Risk-free interest rate | | 0.58% | | 0.58% |
Volatility | | 75.00% | | 75.00% |
Expected average term | | 6.26 | | 6.42 |
Exercise price | | $13.81 | | $13.81 |
Stock price | | $33.91 | | $15.47 |
20
Walmart Transaction Agreement
On July 20, 2017, the Company and Walmart entered into a Transaction Agreement (the “Walmart Transaction Agreement”), pursuant to which the Company agreed to issue to Walmart a warrant (the “Walmart Warrant”) to acquire up to 55,286,696 shares of the Company’s common stock, subject to certain vesting events (the “Walmart Warrant Shares”). The Company and Walmart entered into the Walmart Transaction Agreement in connection with existing commercial agreements between the Company and Walmart with respect to the deployment of the Company’s GenKey fuel cell technology across various Walmart distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. The vesting of the warrant shares was conditioned upon payments made by Walmart or its affiliates (directly or indirectly through third parties) pursuant to transactions entered into after January 1, 2017 under existing commercial agreements.
The majoritywarrant had been exercised with respect to 13,094,217 shares of the Walmart Warrant Shares will vest based on Walmart’s payment of up to $600.0 million to the Company in connection with Walmart’s purchase of goods and services from the Company. The first tranche of 5,819,652 Walmart Warrant Shares vested upon the execution of the Walmart Warrant and was fully exercised as of December 31, 2020. Accordingly, $10.9 million, the fair value of the first tranche of Walmart Warrant Shares, was recorded as a provision for common stock warrants and presented as a reduction to revenue on the consolidated statements of operations during 2017. All future provision for common stock warrants is measured based on their grant-date fair value and recorded as a charge against revenue. The second tranche of 29,098,260 Walmart Warrant Shares vests in 4 installments of 7,274,565 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $200.0 million in the aggregate. The exercise price for the first and second tranches of Walmart Warrant Shares is $2.1231 per share. After Walmart has made payments to the Company totaling $200.0 million, the third tranche of 20,368,784 Walmart Warrant Shares will vest in 8 installments of 2,546,098 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The exercise price of the third tranche of Walmart Warrant Shares will be an amount per share equal to ninety percent (90%) of the 30-day volume weighted average share price of theCompany’s common stock as of the final vesting date of the second tranche of Walmart Warrant Shares, provided that, with limited exceptions, the exercise price for the third tranche will be no lower than $1.1893. The Walmart Warrant is exercisable through July 20, 2027.
The Walmart Warrant provides for net share settlement that, if elected by the holder, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Walmart Warrant provides for certain adjustments that may be made to the exercise priceJune 30, 2022 and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. The Walmart Warrant is classified as an equity instrument.December 31, 2021.
At both June 30, 20212022 and December 31, 2020, 13,094,2172021, 20,368,782 of the Walmart Warrant Shares had vested. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the three months ended June 30, 2022 and 2021 was $2.0 million and 2020 was $1.6 million, and $1.0 million, respectively. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the six months ended June 30, 2022 and 2021 and 2020 was $3.2$3.7 million and $1.9$3.2 million, respectively. During the three and six months ended March 31,June 30, 2022 and 2021, respectively, the Walmart Warrant had beenwas exercised with respect to 0 and 7,274,565 shares of common stock. There were 0 exercises during the three months ended June 30, 2021.
13. Revenue
Disaggregation of revenue
The following table provides information about disaggregation of revenue (in thousands):
| | | | | | | | | | | | |
Major products/services lines | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
| | 2021 | | 2020 | | 2021 | | 2020 | ||||
Sales of fuel cell systems | | $ | 59,169 | | $ | 40,785 | | $ | 85,588 | | $ | 55,425 |
2120
Sale of hydrogen installations and other infrastructure | | | 40,109 | | | 6,961 | | | 60,462 | | | 12,789 |
Services performed on fuel cell systems and related infrastructure | | | 5,675 | | | 6,236 | | | 11,720 | | | 12,757 |
Power Purchase Agreements | | | 8,361 | | | 6,579 | | | 16,187 | | | 13,000 |
Fuel delivered to customers | | | 11,121 | | | 7,372 | | | 22,248 | | | 14,705 |
Other | | | 122 | | | 62 | | | 310 | | | 138 |
Net revenue | | $ | 124,557 | | $ | 67,995 | | $ | 196,515 | | $ | 108,814 |
13. Revenue
Disaggregation of revenue
The following table provides information about disaggregation of revenue (in thousands):
| | | | | | | | | | | | |
Major products/services lines | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | ||||
Sales of fuel cell systems | | $ | 33,411 | | $ | 55,482 | | $ | 70,940 | | $ | 81,161 |
Sales of hydrogen infrastructure | | | 32,414 | | | 40,109 | | | 59,502 | | | 60,462 |
Sales of electolyzers | | | 3,675 | | | 3,687 | | | 7,734 | | | 4,427 |
Sales of engineered equipment | | | 28,556 | | | — | | | 50,524 | | | — |
Services performed on fuel cell systems and related infrastructure | | | 8,822 | | | 5,675 | | | 17,062 | | | 11,720 |
Power Purchase Agreements | | | 11,169 | | | 8,361 | | | 21,206 | | | 16,187 |
Fuel delivered to customers and related equipment | | | 14,472 | | | 11,121 | | | 27,900 | | | 22,248 |
Sales of cryogenic equipment | | | 18,177 | | | — | | | 36,380 | | | — |
Other | | | 571 | | | 122 | | | 822 | | | 310 |
Net revenue | | $ | 151,267 | | $ | 124,557 | | $ | 292,070 | | $ | 196,515 |
Contract balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
| | | | | | | | | | | | |
| | June 30, | | December 31, | | June 30, | | December 31, | ||||
| | 2021 | | 2020 | | 2022 | | 2021 | ||||
Accounts receivable | | $ | 91,359 | | $ | 43,041 | | $ | 61,502 | | $ | 92,675 |
Contract assets | | | 11,549 | | | 18,189 | | | 39,143 | | | 38,757 |
Contract liabilities | | | 93,665 | | | 76,285 | | | 127,705 | | | 183,090 |
Contract assets relate to contracts for which revenue is recognized on a straight-line basis,basis; however, billings escalate over the life of a contract. Contract assets also include amounts recognized as revenue in advance of billings to customers, which are dependent upon the satisfaction of another performance obligation. These amounts are included within prepaid expenses and other currentin contract assets on the accompanying unaudited interim condensed consolidated balance sheets.
The contract liabilities relate to the advance consideration received from customers for services that will be recognized over time (primarily fuel cell and related infrastructure services) and advance consideration received from customers prior to delivery of products. As of June 30, 2021, the amount of contract liabilitiesThese amounts are included within deferred revenue was $72.3 million and the amount ofother contract liabilities within other current liabilities was $21.4 million on the accompanying unaudited interim condensed consolidated balance sheets. As of December 31, 2020, the amount of contract liabilities included within deferred revenue was $56.2 million and the amount of contract liabilities within other current liabilities was $20.1 million.
Significant changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
| |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | |
Contract liabilities | | Six months ended | |
| | June 30, 2021 | |
Increases due to cash received, net of amounts recognized as revenue during the period | | $ | 49,628 |
Revenue recognized that was included in the contract liability balance as of the beginning of the period | | | (32,248) |
Net change in contract liabilities | | $ | 17,380 |
2221
Significant changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands):
| | | | | | |
| | | ||||
Contract assets | | Six months ended | ||||
| | June 30, 2022 | | December 31, 2021 | ||
Transferred to receivables from contract assets recognized at the beginning of the period | | $ | (12,096) | | $ | (14,638) |
Contract assets assumed as part of acquisition | | | — | | | 9,960 |
Revenue recognized and not billed as of the end of the period | | | 12,482 | | | 25,246 |
Net change in contract assets | | $ | 386 | | $ | 20,568 |
| | | | | | |
Contract liabilities | | Six months ended | ||||
| | June 30, 2022 | | December 31, 2021 | ||
Increases due to cash received, net of amounts recognized as revenue during the period | | $ | 41,170 | | $ | 182,052 |
Contract liabilities assumed as part of acquisitions | | | 3,818 | | | 35,727 |
Revenue recognized that was included in the contract liability balance as of the beginning of the period | | | (100,373) | | | (110,974) |
Net change in contract liabilities | | $ | (55,385) | | $ | 106,805 |
Estimated future revenue
The following table includes estimated revenue included in the backlog expected to be recognized in the future (sales of fuel cell systems and hydrogen installations are expected to be recognized as revenue within one year; sales of services and salesPower of servicesPurchase and PPAsAgreements (“PPAs”) are expected to be recognized as revenue over five to seven years) related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period, includingnet of the provision for common stock warrants (in thousands):
| | | | | | |
| | | | | | |
| | June 30, | | June 30, | ||
| | 2021 | | 2022 | ||
Sales of fuel cell systems | | $ | 55,348 | | $ | 14,758 |
Sale of hydrogen installations and other infrastructure | | | 52,193 | |||
Sales of hydrogen installations and other infrastructure | | | 17,781 | |||
Sales of electrolyzers | | | 77,061 | |||
Sales of engineered equipment | | | 48,607 | |||
Services performed on fuel cell systems and related infrastructure | | | 103,505 | | | 93,371 |
Power Purchase Agreements | | | 196,903 | | | 252,003 |
Fuel delivered to customers | | | 63,632 | |||
Other rental income | | | 2,504 | |||
Fuel delivered to customers and related equipment | | | 81,785 | |||
Sales of cryogenic equipment | | | 59,599 | |||
Total estimated future revenue | | $ | 474,085 | | $ | 644,965 |
Contract costs
Contract costs consist of capitalized commission fees and other expenses related to obtaining or fulfilling a contract.
Capitalized contract costs at June 30, 20212022 and December 31, 20202021 were $1.2$0.6 million and $1.5$0.4 million, respectively.
14. Income Taxes
The Company did 0t record anyrecorded $0.4 million and $0 of income tax expense or benefit for the three ormonths ended June 30, 2022 and 2021, respectively. The Company recorded $9 thousand and $0 of income tax expense for the six months ended June 30, 2021. The Company recognized an income tax benefit for the three2022 and six months ended June 30, 2020 of $17.4 million. Income tax benefit for the three and six months ended June 30, 2020 included $12.2 million resulting from the intraperiod tax allocation rules under Accounting Standards Codification (“ASC”) Topic 740-20, Intraperiod Tax Allocation, under which the Company recognized an income tax benefit resulting from a source of future taxable income attributable to the net credit to additional paid-in capital related to the issuance of the 3.75% Convertible Senior Notes, offset by the partial extinguishment of the 5.5% Convertible Senior Notes. In addition, the Company recorded $5.2 million of income tax benefit for the three and six months ended June 30, 2020 related to the recognition of net deferred tax liabilities in connection with the Giner, ELX Inc. acquisition, which resulted in a corresponding reduction in our deferred tax asset valuation allowance.2021, respectively. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its domestic net deferred tax assets, which remain fully reserved.
22
The domestic net deferred tax asset generated from the Company’s net operating loss has been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carry forward will not be realized. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.
15. Fair Value Measurements
The Company records the fair value of assets and liabilities in accordance with ASC 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.
23
In addition to defining fair value, ASC 820 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety.
These levels are:
● | Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities. |
● | Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. |
● | Level 3 — unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability at fair value. |
The fair values of the Company’s investments are based upon prices provided by an independent pricing service. Management has assessed and concluded that these prices are reasonable and has not adjusted any prices received from the independent provider.
Securities reported at fair value utilizing Level 1 inputs represent assets whose fair value is determined based upon observable unadjusted quoted market prices for identical assets in active markets. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices, quotes from less active markets or quoted prices of securities with similar characteristics. There were 0 transfers betweenLevel1, Level2, or Level 3 during the six months ended June 30, 2021.
Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
| | | | | | | | | | |
| | As of June 30, 2021 | ||||||||
| | Carrying | | Fair | | Fair Value Measurements | ||||
| | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | |
Cash equivalents (1) | $ | 141,313 | $ | 141,313 | $ | 87,573 | $ | 53,740 | $ | — |
Corporate bonds | | 705,084 | | 705,084 | | — | | 705,084 | | — |
Commercial paper | | 329,722 | | 329,722 | | — | | 329,722 | | — |
U.S. Treasuries | | 170,477 | | 170,477 | | 170,477 | | — | | — |
Municipal debt | | 9,984 | | 9,984 | | — | | 9,984 | | — |
Certificates of deposit | | 27,454 | | 27,454 | | — | | 27,454 | | — |
Equity securities | | 120,302 | | 120,302 | | 120,302 | | — | | — |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Contingent consideration | | 9,990 | | 9,990 | | — | | — | | 9,990 |
Convertible senior notes | | 192,011 | | 1,320,194 | | — | | 1,320,194 | | — |
Long-term debt | | 160,484 | | 160,484 | | — | | — | | 160,484 |
Finance obligations | | 195,805 | | 195,805 | | — | | — | | 195,805 |
| | | | | | | | | | |
| | | | | | | | | | |
| | As of December 31, 2020 | ||||||||
| | Carrying | | Fair | | Fair Value Measurements | ||||
| | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | | | | |
Contingent consideration | | 9,760 | | 9,760 | | — | | — | | 9,760 |
Convertible senior notes | | 85,640 | | 1,272,766 | | — | | 1,272,766 | | — |
Long-term debt | | 175,402 | | 175,402 | | — | | — | | 175,402 |
Finance obligations | | 181,553 | | 181,553 | | — | | — | | 181,553 |
The fair values for available-for-sale and equity securities are based on prices obtained from independent pricing services. Available-for-sale securities are characterized as Level 2 assets, as their fair values are determined using observable market inputs. Equity securities are characterized as Level 1 assets, as their fair values are determined using active markets for identical assets. There were 0 transfers between Level 1, Level 2, or Level 3 for the three and six months ended June 30, 2022.
Financial instruments not recorded at fair value on a recurring basis include equity method investments that have not been remeasured or impaired in the current period, such as our investments in HyVia, AccionaPlug S.L., and SK Plug Hyverse Co., Ltd. During the three and six months ended June 30, 2022, the Company contributed approximately $0 and $22.6 million, respectively, to HyVia, AccionaPlug S.L. and SK Plug Hyverse Co., Ltd.
23
.
Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
| | | | | | | | | | |
| | As of June 30, 2022 | ||||||||
| | Carrying | | Fair | | Fair Value Measurements | ||||
| | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | |
Cash equivalents | $ | 117,860 | $ | 117,860 | $ | 117,860 | $ | — | $ | — |
Corporate bonds | | 225,721 | | 225,721 | | — | | 225,721 | | — |
U.S. Treasuries | | 490,185 | | 490,185 | | 490,185 | | — | | — |
Equity securities | | 134,342 | | 134,342 | | 134,342 | | — | | — |
Swaps and forward contracts | | 489 | | 489 | | 489 | | — | | — |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Contingent consideration | | 96,508 | | 96,508 | | — | | — | | 96,508 |
Swaps and forward contracts | | 1,291 | | 1,291 | | 1,291 | | — | | — |
| | | | | | | | | | |
| | As of December 31, 2021 | ||||||||
| | Carrying | | Fair | | Fair Value Measurements | ||||
| | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | |
Cash equivalents | $ | 115,241 | $ | 115,241 | $ | 115,241 | $ | — | $ | — |
Corporate bonds | | 226,382 | | 226,382 | | — | | 226,382 | | — |
U.S. Treasuries | | 1,013,883 | | 1,013,883 | | 1,013,883 | | — | | — |
Equity securities | | 147,995 | | 147,995 | | 147,995 | | — | | — |
Swaps and forward contracts | | 70 | | 70 | | 70 | | — | | — |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Contingent consideration | | 62,297 | | 62,297 | | — | | — | | 62,297 |
Swaps and forward contracts | | 981 | | 981 | | 981 | | — | | — |
The liabilities measured at fair value on a recurring basis that have unobservable inputs and are therefore categorized as level 3 are related to contingent consideration. The fair value as of June 30, 2022 is comprised of $78.6 million related to the acquisitions of Frames, Applied Cryo, and Joule, as well as $17.9 million from two acquisitions in 2020. Giner ELX, Inc. was acquired in June 2020, and included in the purchase price are preliminary fair value associated with earnout payments of $16.0 million that the sellers are eligible to receive. The remaining contingent consideration as of June 30, 2022 is related to the achievement of the dry build electrolyzer stack earnout and the achievement of certain revenue targets for years 2022 through 2023. As of June 30, 2022, the remaining estimated fair value of contingent consideration for Giner ELX Inc. is $16.5 million. United Hydrogen Group Inc. was acquired in June 2020, and included in the purchase price was contingent consideration based on the future performance related to the expansion of the liquefication capacity of the Charleston, Tennessee liquid hydrogen plant. The Company’s liability for this contingent consideration was measured at fair value based on the Company’s expectations of achieving the expansion milestone. As of June 30, 2022, the remaining estimated fair value is $1.4 million. In the unaudited interim condensed consolidated
24
balance sheets, contingent consideration is recorded in the contingent consideration, loss accrual for service contracts, and other liabilities financial statement line item, and is comprised of the following unobservable inputs:
| | | | | | |
Financial Instrument |
| Fair Value | Valuation Technique | Unobservable Input | Range (weighted average) | |
Contingent Consideration | | $ | 85,466 | Scenario based method | Credit spread | 16.24% |
| | | | | Discount rate | 17.56% - 19.19% (18.38%) |
| | | 10,350 | Monte carlo simulation | Credit spread | 16.24% |
| | | | | Discount rate | 18.84% - 19.09% |
| | | | | Revenue volatility | 49.11% |
| | | 692 | Monte carlo simulation | Credit spread | 16.24% |
| | | | | Revenue volatility | 40.7% - 24.4% (35.0%) |
| | | | | Gross profit volatility | 113.0% - 23.0% (65.0%) |
| | | 96,508 | | | |
The change in the carrying amount of Level 3 liabilities for the three and six month period ended June 30, 2022 was as follows (in thousands):
| | | |
| | Six months ended | |
| | | June 30, 2022 |
Beginning balance at December 31, 2021 | | $ | 62,297 |
Payments | | | (2,667) |
Additions due to acquisitions | | | 41,732 |
Fair value adjustments | | | 2,461 |
Foreign currency translation adjustment | |
| (604) |
Ending balance at March 31, 2022 | | | 103,219 |
Fair value adjustments | | | (5,066) |
Foreign currency translation adjustment | |
| (1,645) |
Ending balance at June 30, 2022 | | $ | 96,508 |
| | | |
25
16. Investments
The amortized cost, gross unrealized gains and losses, fair value of those investments classified as available-for-sale, and allowance for credit losses at June 30, 2022 are summarized as follows (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | ||||||||||||
| Amortized | | Gross | | Gross | | Fair | | Allowance for | |||||
| Cost | | Unrealized Gains | | Unrealized Losses | | Value | | Credit Losses | |||||
Corporate bonds | $ | 233,386 | | $ | — | | $ | (7,665) | | $ | 225,721 | | | — |
U.S. Treasuries | | 503,597 | | | — | | | (13,412) | | | 490,185 | | | — |
Total | $ | 736,983 | | $ | — | | $ | (21,077) | | $ | 715,906 | | $ | — |
The amortized cost, gross unrealized gains and losses, fair value of those investments classified as available-for-sale, and allowance for credit losses at December 31, 2021 are summarized as follows (in thousands):
| | | | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||||
| Amortized | | Gross | | Gross | | Fair | | Allowance for | |||||
| Cost | | Unrealized Gains | | Unrealized Losses | | Value | | Credit Losses | |||||
Corporate bonds | $ | 228,614 | | $ | — | | $ | (2,232) | | $ | 226,382 | | | — |
U.S. Treasuries | | 1,014,319 | | | 20 | | | (456) | | | 1,013,883 | | | — |
Total | $ | 1,242,933 | | $ | 20 | | $ | (2,688) | | $ | 1,240,265 | | $ | — |
The cost, gross unrealized gains and losses, and fair value of those investments classified as equity securities at June 30, 2022 are summarized as follows (in thousands):
| | | | | | | | | | | |
| June 30, 2022 | ||||||||||
| | | | Gross | | Gross | | Fair | |||
| | Cost | | Unrealized Gains | | Unrealized Losses | | Value | |||
Fixed income mutual funds | $ | 70,247 |
| $ | — | | $ | (2,219) | | $ | 68,028 |
Exchange traded mutual funds | | 76,000 | | | — | | | (9,686) | | | 66,314 |
Total | $ | 146,247 | | $ | — | | $ | (11,905) | | $ | 134,342 |
The cost, gross unrealized gains and losses, and fair value of those investments classified as equity securities at December 31, 2021 are summarized as follows (in thousands):
| | | | | | | | | | | |
| December 31, 2021 | ||||||||||
| | | | Gross | | Gross | | Fair | |||
| | Cost | | Unrealized Gains | | Unrealized Losses | | Value | |||
Fixed income mutual funds | $ | 70,247 |
| $ | — | | $ | (574) | | $ | 69,673 |
Exchange traded mutual funds | | 71,010 | | | 7,312 | | | — | | | 78,322 |
Total | $ | 141,257 | | $ | 7,312 | | $ | (574) | | $ | 147,995 |
26
A summary of the amortized cost and fair value of investments classified as available-for-sale, by contractual maturity, as of June 30, 2022 and December 31, 2021 was as follows (in thousands):
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 | ||||||||
| | Amortized | | Fair | | | Amortized | | Fair | ||
Maturity: | | Cost | | Value | | | Cost | | Value | ||
Within one year | $ | 275,593 |
| $ | 272,371 | | $ | 670,584 |
| $ | 670,306 |
After one through five years |
| 461,390 | |
| 443,535 | |
| 572,349 | |
| 569,959 |
Total | $ | 736,983 | | $ | 715,906 | | $ | 1,242,933 | | $ | 1,240,265 |
Accrued interest income was $3.4 million and $3.7 million at June 30, 2022 and December 31, 2021, respectively, and included within the balance for prepaid expenses and other current assets in the unaudited interim condensed consolidated balance sheets.
17. Operating and Finance Lease Liabilities
As of June 30, 2021,2022, the Company had operating leases, as lessee, primarily associated with sale/leaseback transactions that are partially secured by restricted cash, security deposits and pledged escrows (see also Note 1, “Nature of Operations”) as summarized below. These leases expire over the next one to nine years. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease.
Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote. At the end of the lease term, the leased assets may be returned to the lessor by the Company, the Company may negotiate with the lessor to purchase the assets at fair market value, or the Company may negotiate with the lessor to renew the lease at market rental rates. No residual value guarantees are contained in the leases. No financial covenants are contained within the lease; however, the lease however there arecontains customary operational covenants such as assurancethe requirement that the Company properly maintainsmaintain the leased assets and carriescarry appropriate insurance, etc.insurance. The leases include credit support in the form of either cash, collateral or letters of credit. See Note 19, “Commitments and Contingencies” for a description of cash held as security associated with the leases.
The Company has finance leases associated with its property and equipment in Latham, New York and at fueling customer locations. The fair value of this finance obligation approximated the carrying value as of June 30, 2021.2022.
Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of June 30, 20212022 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | | Finance | | Total | | | | | Finance | | Total | ||||
| | | Operating Lease | | Lease | | Lease | | Operating Lease | | Lease | | Lease | |||||
| | | Liability | | Liability | | Liabilities | | Liability | | Liability | | Liabilities | |||||
Remainder of 2021 | | $ | 17,298 | | $ | 1,826 | | $ | 19,124 | |||||||||
2022 | | | 34,579 | |
| 3,731 | | | 38,310 | |||||||||
Remainder of 2022 | | $ | 30,372 | | $ | 4,360 | | $ | 34,732 | |||||||||
2023 | | | 34,636 | |
| 3,708 | | | 38,344 | | | 60,587 | |
| 8,617 | | | 69,204 |
2024 | | | 34,636 | |
| 3,715 | | | 38,351 | | | 59,442 | |
| 8,590 | | �� | 68,032 |
2025 and thereafter | | | 73,276 | | | 4,921 | | | 78,197 | |||||||||
2025 | | | 54,991 | |
| 11,488 | | | 66,479 | |||||||||
2026 | | | 47,150 | | | 8,856 | | | 56,006 | |||||||||
2027 and thereafter | | | 49,979 | | | 4,022 | | | 54,001 | |||||||||
Total future minimum payments | | | 194,425 | |
| 17,901 | | | 212,326 | | | 302,521 | |
| 45,933 | | | 348,454 |
Less imputed interest | | | (52,307) | | | (2,793) | | | (55,100) | | | (71,974) | | | (6,637) | | | (78,611) |
Total | | $ | 142,118 | | $ | 15,108 | | $ | 157,226 | | $ | 230,547 | | $ | 39,296 | | $ | 269,843 |
Rental expense for all operating leases was $8.2$15.1 million and $7.8$8.2 million for the three months ended June 30, 20212022 and 2020,2021, respectively. Rental expense for all operating leases was $16.3$29.2 million and $12.5$16.3 million for the six months ended June 30, 20212022 and 2020,2021, respectively.
The gross profit on sale/leaseback transactions for all operating leases was $19.5 million and $14.4 million for the three months ended June 30, 2021 and 2020, respectively. The gross profit on sale/leaseback transactions for all operating leases was $35.4 million and $19.7 million for the six months ended June 30, 2021 and 2020, respectively.
Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $24.0 million and $2.9 million for the three months ended June 30, 2021 and 2020, respectively. Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $35.9 million and $8.1 million for the six months ended June 30, 2021 and 2020, respectively.
At June 30, 2021 and December 31, 2020, the right of use assets associated with operating leases was $172.3 million and $136.9 million, respectively. The accumulated depreciation for these right of use assets was $26.5 million and $19.9 million at June 30, 2021 and December 31, 2020, respectively.
At June 30, 2021 and December 31, 2020, the right of use assets associated with finance leases was $17.3 million and $5.7 million, respectively. The accumulated depreciation for these right of use assets was $380 thousand and $102 thousand at June 30, 2021 and December 31, 2020, respectively.
2527
At June 30, 20212022 and December 31, 2020,2021, security deposits associated with sale/leaseback transactions were $3.1$3.9 million and $5.8$3.5 million, respectively, and were included in other assets in the unaudited interim condensed consolidated balance sheets.
At June 30, 2022 and December 31, 2021, the right of use assets associated with finance leases was $47.1 million and $33.9 million, respectively. The accumulated depreciation for these right of use assets was $2.9 million and $1.5 million at June 30, 2022 and December 31, 2021, respectively.
Other information related to the operating leases are presented in the following table:
| | | | | | | | | ||
| | Six months ended | | | Six months ended | Six months ended | | Six months ended | ||
| | June 30, 2021 | | | June 30, 2020 | June 30, 2022 | | June 30, 2021 | ||
Cash payments (in thousands) | $ | 16,081 | | $ | 9,674 | $ | 27,601 | | $ | 16,081 |
Weighted average remaining lease term (years) | | 5.82 | | | 4.34 | | 5.28 | | | 5.82 |
Weighted average discount rate | | 11.4% | | | 12.1% | | 10.8% | | | 11.4% |
RightFinance lease costs include amortization of the right of use assets obtained in exchange for new finance(i.e., depreciation expense) and interest on lease liabilities (i.e., interest and other expense, net in the consolidated statement of operations), and were $6.5$0.8 million and $0.7$0.6 million for the three months ended June 30, 2021 and 2020,2022 respectively. RightFinance lease costs include amortization of the right of use assets obtained in exchange for new finance(i.e., depreciation expense) and interest on lease liabilities (i.e., interest and other expense, net in the consolidated statement of operations), and were $12.1$1.5 million and $0.7$1.2 million for the six months ended June 30, 2021 and 2020,2022, respectively.
Other information related to the finance leases are presented in the following table:
| | | | | | | | | | ||
| | Six months ended | | | Six months ended | | Six months ended | | Six months ended | ||
| | June 30, 2021 | | | June 30, 2020 | | June 30, 2022 | | June 30, 2021 | ||
Cash payments (in thousands) | $ | 1,166 | | $ | 132 | | $ | 3,915 | | $ | 1,166 |
Weighted average remaining lease term (years) | | 4.86 | | | 6.74 | | | 4.28 | | | 4.86 |
Weighted average discount rate | | 6.9% | | | 9.6% | | | 6.4% | | | 6.9% |
17.18. Finance Obligation
The Company has sold future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at June 30, 20212022 was $176.3$251.7 million, $27.3$43.7 million and $149.0$208.0 million of which was classified as short-term and long-term, respectively, on the accompanying unaudited interim condensed consolidated balance sheet. The outstanding balance of this obligation at December 31, 20202021 was $157.7$236.6 million, $24.2$37.5 million and $133.5$199.1 million of which was classified as short-term and long-term, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation approximated the carrying value as of June 30, 20212022 and December 31, 2020.2021.
In prior periods, the Company entered into sale/leaseback transactions that were accounted for as financing transactions and reported as part of finance obligations. The outstanding balance of finance obligations related to sale/leaseback transactions at June 30, 20212022 was $19.5$14.7 million, $6.5$3.0 million and $13.0$11.7 million of which was classified as short-term and long-term, respectively on the accompanying consolidated balance sheet. The outstanding balance of this obligation at December 31, 20202021 was $23.9$17.0 million, $8.0$4.5 million and $15.9$12.5 million of which was classified as short-term and long-term, respectively on the accompanying consolidated balance sheets. The fair value of this finance obligation approximated the carrying value as of both June 30, 20212022 and December 31, 2020.2021.
Future minimum payments under finance obligations notes above as of June 30, 2021 were as follows (in thousands):
| | | | | | | | | |
| | | | | | | | Total | |
| | | Sale of Future | | | Sale/leaseback | Finance | ||
| | | revenue - debt | | | financings | Obligations | ||
Remainder of 2021 | | $ | 23,525 | | $ | 4,212 | | $ | 27,737 |
2022 | | | 46,165 | | | 4,975 | | | 51,140 |
2628
2023 | | | 46,165 | | | 3,148 | | | 49,313 |
2024 | | | 46,165 | | | 16,154 | | | 62,319 |
2025 and thereafter | | | 72,708 | | | — | | | 72,708 |
Total future minimum payments | | | 234,728 | | | 28,489 | | | 263,217 |
Less imputed interest | | | (58,461) | | | (8,951) | | | (67,412) |
Total | | $ | 176,267 | | $ | 19,538 | | $ | 195,805 |
Other information related to the above finance obligations are presented in the following table:
| | | | | |
| | Six months ended | | | Six months ended |
| | June 30, 2021 | | | June 30, 2020 |
Cash payments (in thousands) | $ | 26,508 | | $ | 20,148 |
Weighted average remaining term (years) | | 4.9 | | | 4.3 |
Weighted average discount rate | | 11.3% | | | 11.2% |
18. Investments
The amortized cost, gross unrealized gains and losses, fair valueFuture minimum payments under finance obligations notes above as of those investments classified as available-for-sale, and allowance for credit losses at June 30, 2021 are summarized2022 were as follows (in thousands):
| | | | | | | | | | | | | | |
| Amortized | | Gross | | Gross | | Fair | | Allowance for | |||||
| Cost | | Unrealized Gains | | Unrealized Losses | | Value | | Credit Losses | |||||
Corporate bonds | $ | 707,022 | | $ | 51 | | $ | (1,989) | | $ | 705,084 | | | — |
Commercial paper | | 329,471 | | | 253 | | | (2) | | | 329,722 | | | — |
Certificates of deposit | | 27,460 | | | — | | | (6) | | | 27,454 | | | — |
U.S. Treasuries | | 170,672 | | | — | | | (195) | | | 170,477 | | | — |
Municipal debt | | 9,993 | | | — | | | (9) | | | 9,984 | | | — |
Total | $ | 1,244,618 | | $ | 304 | | $ | (2,201) | | $ | 1,242,721 | | $ | — |
| | | | | | | | | |
| | | | | | | | Total | |
| | Sale of Future | | Sale/leaseback | | Finance | |||
| | revenue - debt | | financings | | Obligations | |||
Remainder of 2022 | | $ | 34,662 | | $ | 1,849 | | $ | 36,511 |
2023 | | | 69,324 | | | 3,561 | | | 72,885 |
2024 | | | 69,324 | | | 9,316 | | | 78,640 |
2025 | | | 64,067 | | | 412 | | | 64,479 |
2026 | | | 47,344 | | | 412 | | | 47,756 |
2027 and thereafter | | | 41,481 | | | 611 | | | 42,092 |
Total future minimum payments | | | 326,202 | | | 16,161 | | | 342,363 |
Less imputed interest | | | (74,523) | | | (1,434) | | | (75,957) |
Total | | $ | 251,679 | | $ | 14,727 | | $ | 266,406 |
The cost, gross unrealized gains and losses, and fair value of those investments classified as equity securities at June 30, 2021Other information related to the above finance obligations are summarized as follows (in thousands):presented in the following table:
| | | | | | | | | | | |
| June 30, 2021 | ||||||||||
| | | | Gross | | Gross | | Fair | |||
| | Cost | | Unrealized Gains | | Unrealized Losses | | Value | |||
Fixed income mutual funds | $ | 89,962 |
| $ | 17 | | $ | (81) | | $ | 89,898 |
Exchange traded mutual funds | | 30,016 | | | 388 | | | — | | | 30,404 |
Total | $ | 119,978 | | $ | 405 | | $ | (81) | | $ | 120,302 |
A summary of the amortized cost and fair value of investments classified as available-for-sale, by contractual maturity, as of June 30, 2021 is as follows (in thousands):
| | | | | |
| June 30, 2021 | ||||
| | Amortized | | Fair | |
Maturity: | | Cost | | Value | |
Within one year | $ | 717,531 |
| $ | 717,285 |
After one through five years |
| 527,087 | |
| 525,436 |
Total | $ | 1,244,618 | | $ | 1,242,721 |
| | | | | |
| Six months ended | | Six months ended | ||
| June 30, 2022 | | June 30, 2021 | ||
Cash payments (in thousands) | $ | 33,672 | | $ | 26,508 |
Weighted average remaining term (years) | | 4.80 | | | 4.90 |
Weighted average discount rate | | 10.7% | | | 11.3% |
27
19. Commitments and Contingencies
Restricted Cash
In connection with certain of the above noted sale/leaseback agreements, cash of $243.5$270.9 million and $275.1 million was required to be restricted as security as of June 30, 2022 and December 31, 2021, respectively, which restricted cash will be released over the lease term. As of June 30, 2022 and December 31, 2021, the Company also had certain letters of credit backed by restricted cashsecurity deposits totaling $143.7$331.7 million and $286.0 million, respectively, that are security for the above noted sale/leaseback agreements. As of June 30, 2022, the Company also had certain customs related letters of credit totaling $13.7 million.
As of June 30, 2022 and December 31, 2021, the Company had $67.7 million, held in escrow related to the construction of certain hydrogen plants.
The Company also had $5.0 million and $2.3 million of consideration held by our paying agent in connection with the Applied Cryo and Joule acquisitions, respectively, reported as restricted cash as of June 30, 2022, with a corresponding accrued liability on the Company’s unaudited interim condensed consolidated balance sheet. Additionally, the Company had $14.5 million in restricted cash as collateral resulting from the Frames acquisition as of June 30, 2022.
Litigation
Legal matters are defended and handled in the ordinary course of business. Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. The Company has not recorded any accruals related to any legal matters.
As previously disclosed, on July 22, 2021, the U.S. District Court for the Southern District of New York consolidated multiple shareholder class actions into In re Plug Power, Inc. Securities Litigation, No. 1:21-cv-2004,
29
pending in the U.S. District Court for the Southern District of New York (the “Class Action”) and appointed a lead plaintiff. For previously reported information about the cases that were consolidated into the Class Action, refer to Part I, Item 3, “Legal Proceedings,” of the Company’s 2021 Form 10-K. On October 6, 2021, lead plaintiff filed a Consolidated Amended Class Action Complaint (the “Class Action Amended Complaint”) which asserts claims individually and on behalf of all persons who purchased or otherwise acquired the Company’s securities between November 9, 2020 and March 9, 2021 (the “Class”). The Class Action Amended Complaint includes two claims, for (1) violation of Section 10(b) of the exchange act and Rule 10b5 promulgated thereunder (against all defendants); and (2) violation of Section 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (against Mr. Marsh and Mr. Middleton). The Class Action Amended Complaint alleges that defendants made “materially false” statements concerning (1) adjusted EBITDA; (2) fuel delivery and research and development expenses; (3) costs related to provision for loss contracts; (4) gross losses; and (5) the effectiveness of internal controls and procedures, and that these alleged misstatements caused Class members losses and damages. The Class Action Amended Complaint seeks compensatory damages “in an amount to be proven at trial, including prejudgment interest thereon”; “reasonable costs and expenses incurred in th[e] action”; and “[s]uch other and further relief as the [c]ourt may deem just and proper.” On December 6, 2021, defendants filed a motion to dismiss the Class Action Amended Complaint. Briefing on the motion to dismiss was completed in March 2022.
On June 13, 2022, alleged Company stockholder Donna Max, derivatively on behalf of nominal defendant Plug, filed a complaint in the United States District Court for the District of Delaware against the derivative defendants named in the Liu Derivative Complaint, captioned Max v. Marsh, et. al., case no. 1:22-cv-00781(D. Del.)(the “Max Derivative Complaint”). The Max Derivative Complaint alleges that, for the years 2018, 2019 and 2020, the defendants did not “assure that a reliable system of financial controls was in place and functioning effectively”; “failed to disclose errors in the Company's accounting primarily relating to (i) the reported book value of right of use assets and related finance obligations, (ii) loss accruals for certain service contracts, (iii) the impairment of certain long-lived assets, and (iv) the classification of certain expenses previously included in research and development costs”; and that certain defendants traded Plug Power stock at “artificially inflated stock prices.” The Max Derivative Complaint asserts claims for (1) breach of fiduciary against all defendants; (2) breach of fiduciary duty for insider trading against certain defendants; and (3) contribution under Sections 10(b) and 21D of the Securities Exchange Act of 1934 against certain defendants. The Max Derivative Complaint seeks an award “for the damages sustained by [the Company]” and related relief. By stipulation approved by the Court, the case has been stayed pending the resolution of the motion to dismiss in the Securities Class action.
On June 29, 2022, alleged Company stockholder Abbas Khambati, derivatively on behalf of nominal defendant Plug, filed a complaint in the Court of Chancery in the State of Delaware against the derivative defendants named in the Liu Derivative Complaint and Gerard A. Conway, Jr. and Keith Schmid, captioned Khambati v. McNamee, et. al., C.A. no. 2022-05691(Del. Ch.)(the “Khambati Derivative Complaint”). The Khambati Derivative Complaint alleges that the defendants “deceive[d] the investing public, including stockholders of Plug Power, regarding the Individual Defendants’ management of Plug Power’s operations and the Company’s compliance with the SEC's accounting rules”; “facilitate[d” certain defendants’ sales of “their personally held shares while in possession of material, nonpublic information”; and “enhance[d] the Individual Defendants’ executive and directorial positions at Plug Power and the profits, power, and prestige that the Individual Defendants enjoyed as a result of holding these positions.” The Khambati Derivative Complaint asserts claims for (1) breach of fiduciary; and (2) disgorgement and unjust enrichment. The Khambati Derivative Complaint seeks an award “for the damages sustained by [the Company] as a result of the breaches” alleged or “disgorgement or restitution”; “disgorgement of insider trading profits” and “all profits, benefits and other compensation obtained by [defendants’] insider trading and further profits flowing therefrom”; an order “[d]irecting the Company to take all necessary actions to reform and improve its corporate governance and internal procedures”; and related relief. By stipulation approved by the Court, the case has been stayed pending the resolution of the motion to dismiss in the Securities Class action.
On July 19, 2022, alleged Company stockholder Anne D. Graziano, as Trustee of the Anne D. Graziano Revocable Living Trust, derivatively on behalf of nominal defendant Plug, filed a complaint in the Court of Chancery in the State of Delaware against the derivative defendants named in the Khambati Derivative Complaint, captioned Graziano v. Marsh, et. al., C.A. no. 2022-0629 (Del. Ch.)(the “Graziano Derivative Complaint”). The Graziano Derivative Complaint alleges that the director defendants (i) “either knowingly or recklessly issued or caused the Company to issue the materially false and misleading statements” concerning “certain critical accounting issues”; (ii) “willfully ignored, or recklessly failed to inform themselves of, the obvious problems with the Company’s internal
30
controls, practices, and procedures, and failed to make a good faith effort to correct the problems or prevent their recurrence”; (iii) the members of the Audit Committee failed “to prevent, correct, or inform the Board of the issuance of material misstatements and omissions regarding critical accounting issues and the adequacy of the Company’s internal controls”; (iv) “received payments, benefits, stock options, and other emoluments by virtue of their membership on the Board and their control of the Company; (v) violated Plug’s Code of Conduct because they knowingly or recklessly engaged in and participated in making and/or causing the Company to make the materially false and misleading statements; and (vi) that certain defendants “sold large amounts of Company stock while it was trading at artificially inflated prices.” The Graziano Derivative Complaint asserts claims for (1) breach of fiduciary; (2) breach of fiduciary duty against certain defendants for insider trading; (3) unjust enrichment; (4) aiding and abetting breach of fiduciary duty; and (5) waste of corporate assets. The Graziano Derivative Complaint seeks an award of “the amount of damages sustained by the Company”; seeks an order “[d]irecting Plug Power to take all necessary actions to reform and improve its corporate governance and internal procedures to comply with applicable laws and to protect Plug Power and its stockholders from a repeat of the damaging events described herein”; and related relief. The parties to the Graziano Derivative Complaint and Khambati Derivative Complaint have agreed to consolidate their actions and have filed a stipulation with the Court to that effect and for a stay of the Graziano Derivative Complaint pending the resolution of the motion to dismiss in the Securities Class action.
As previously disclosed, on August 28, 2018, a lawsuit was filed on behalf of multiple individuals against the Company and five corporate co-defendants in the 9th Judicial District Court, Rapides Parish, Louisiana. The lawsuit relates to the previously disclosed May 2018 accident involving a forklift powered by the Company’s fuel cell at a Procter & Gamble facility in Louisiana. The lawsuit alleges claims against the Company and co-defendants, including Structural Composites Industries, Deep South Equipment Co., Air Products and Chemicals, Inc., and Hyster-Yale Group, Inc. for claims under the Louisiana Product Liability Act (“LPLA”) including defect in construction and/or composition, design defect, inadequate warning, breach of express warranty and negligence for wrongful death and personal injuries, among other damages. Procter & Gamble has intervened in that suit to recover worker’s compensation benefits paid to or for the employees/dependents. Procter & Gamble has also filed suit for property damage, business interruption, loss of revenue, expenses, and other damages. Procter & Gamble alleges theories under the LPLA, breach of warranty and quasi-contractual claims under Louisiana law. Defendants include the Company and several of the same co-defendants from the August 2018 lawsuit, including Structural Composites Industries, Deep South Equipment Co., and Hyster-Yale Group, Inc. In April 2022, Plug reached a settlement with respect to the individual plaintiffs on terms well below the Company’s commercial liability insurance limits and continues to vigorously defend the remaining lawsuit against Proctor & Gamble.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, restricted cash, accounts receivable and marketable securities. Cash and restricted cash are maintained in accounts with financial institutions, which, at times may exceed the Federal depository insurance coverage of $0.25$0.3 million. The Company has not experienced losses on these accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant. The Company’s available-for-sale securities consists primarily of investments in commercial paper, U.S. Treasury securities municipal debt and short-term high credit quality corporate debt securities. Equity securities are comprised of fixed income and equity market index mutual funds.
Concentrations of credit risk with respect to receivables exist due to the limited number of select customers with whom the Company has commercial sales arrangements. To mitigate credit risk, the Company performs appropriate evaluation of a prospective customer’s financial condition.
At June 30, 2021, 1 customer2022, 2 customers comprised 78.5%36.4% of the total accounts receivable balance. At December 31, 2020, 3 customers2021, 1 customer comprised 73.9%approximately 46.6% of the total accounts receivable balance.
For purposes of assigning a customer to a sale/leaseback transaction completed with a financial institution, the Company considers the end user of the assets to be the ultimate customer. For the three and six months ended June 30, 2021, 81.3%2022, 38.0% and 77.7%,35.5% of total consolidated revenues were associated with 32 customers, respectively. For the three and six months ended June 30, 2020, 83.9%2021, 81.3% and 77.9%77.7% of total consolidated revenues were associated primarily with 23 customers, respectively.
20. Employee Benefit Plans
2011 Stock Option and Incentive Plan
On May 12, 2011, the Company’s stockholders approved the 2011 Stock Option and Incentive Plan (the “2011 Plan”). The 2011 Plan provided for the issuance of up to a maximum number of shares of common stock equal to the sum of (i) 1,000,000, plus (ii) the number of shares of common stock underlying any grants pursuant to the 2011 Plan or the Plug Power Inc. 1999 Stock Option and Incentive Plan that are forfeited, canceled, repurchased or are terminated (other than by exercise). The shares may be issued pursuant to stock options, stock appreciation rights, restricted stock awards and certain other equity-based awards granted to employees, directors and consultants of the Company. NaN further grants may be made under the 2011 Plan after May 12, 2021. Through various amendments to the 2011 Plan approved by the Company’s stockholders, the number of shares of the Company’s common stock authorized for issuance under the 2011 Plan has been increased to 42.4 million. The Company recorded expense of approximately $11.1 million and $2.5 million, for the three months ended June 30, 2021 and 2020, respectively, in connection with the 2011 Plan. The Company recorded
2831
expense20. Employee Benefit Plans
2011 and 2021 Stock Option and Incentive Plan
The Company has issued stock-based awards to employees and members of approximately $19.6its Board of Directors (the “Board”) consisting of stock options and restricted stock awards. The Company accounts for all stock-based awards to employees and members of the Board as compensation costs in the consolidated financial statements based on their fair values measured as of the date of grant. These costs are recognized over the requisite service period. Stock-based compensation costs recognized, excluding the Company’s matching contributions to the Plug Power Inc. 401(k) Savings & Retirement Plan and quarterly Board compensation, were $42.6 million and $5.0$11.1 million for the three months ended June 30, 2022 and June 30, 2021, respectively. Stock-based compensation costs recognized, excluding the Company’s matching contributions to the Plug Power Inc. 401(k) Savings & Retirement Plan and quarterly Board compensation, were $83.5 million and $19.6 million for the six months ended June 30, 20212022 and 2020, respectively, in connection with the 2011 Plan. In July 2021, the 2021 Stock Option Incentive Plan (the “2021 Plan”) was approved by the Company’s stockholders, which provides for the sum of 22,500,000 shares in addition to 473,491 shares of common stock that are available for grant under the 2011 Plan to be issued under the 2021 Plan.
At June 30, 2021, there were outstanding options to purchase approximately 9.2 million shares of common stock. Options for employees issued under this plan generally vest in equal annual installments over three years and expire ten years after issuance. Options granted to members of the Board generally vest one year after issuance. To date, options granted under the 2011 Plan have vesting provisions ranging from one to three years in duration and expire ten years after issuance.
Compensation cost associated with employee stock options represented approximately $4.3 million and $1.5 million of the total share-based payment expense recorded for the three months ended June 30, 2021 and June 30, 2020, respectively. Compensation cost associated with employee stock options represented approximately $7.6 million and $2.9 million of the total share-based payment expense recorded for the six months ended June 30, 2021 and June 30, 2020, respectively. The Company estimatesmethods and assumptions used in the determination of the fair value of stock options using a Black-Scholes valuation model, and the resulting fair value is recorded as compensation cost on a straight-line basis over the option vesting period. Key inputs and assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the Company’s stock, an appropriate risk-free rate, and the Company’s dividend yield. Estimates of fair valuestock-based awards are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company. The assumptions made for purposes of estimating fair value under the Black-Scholes model for the 698,500 and 174,649 options granted during the six months ended June 30,consistent with those described in our 2021 and 2020, respectively, were as follows:Form 10-K.
| | | | |
|
| June 30, | | June 30, |
| | 2021 |
| 2020 |
Expected term of options (years) | | 5 | | 6 |
Risk free interest rate | | 0.61% - 1.04% | | 0.45% - 1.37% |
Volatility | | 72.46% - 73.69% | | 64.19% - 64.80% |
The components and classification of stock-based compensation expense were as follows (in thousands):
| | | | | | | | | | | |
| Three months ended | | Six months ended | ||||||||
| June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 | ||||
Cost of sales | $ | 1,268 | | $ | 279 | | $ | 3,144 | | $ | 550 |
Research and development | | 857 | | | 1,394 | | | 2,579 | | | 2,752 |
Selling, general and administrative | | 40,428 | | | 9,447 | | | 77,776 | | | 16,301 |
| $ | 42,553 | | $ | 11,120 | | $ | 83,499 | | $ | 19,603 |
There was 0 expected dividend yield for the employee stock options granted.
Option Awards
The Company has historically used the simplified method in determining its expected term of all its stockissues options that are time and performance-based awards. All option grants in all periods presented. The simplified method was used because the Company did not believe historical exercise data provided a reasonable basis for the expected term of its grants, primarilyawards are determined to be classified as a result of the limited number of stock option exercises that have historically occurred. Due to the recent increase in exercise activity at the Company, beginning in the second quarter of 2021, the expected term is based on historical experience. The estimated stock price volatility was derived from the Company’s actual historic stock prices over the past five years, which represents the Company’s best estimate of expected volatility.equity awards.
A summary ofService Stock Options Awards
The following table reflects the service stock option activity for the six months ended June 30, 2021 is as follows (in thousands except share amounts):2022:
| | | | | | | | | | | | | | | | | | | | |
|
| |
| |
| Weighted |
| | |
| |
| |
| Weighted |
| | | ||
| | | | Weighted | | Average | | | | | | | Weighted | | Average | | | | ||
| | | | Average | | Remaining | | Aggregate | | | | Average | | Remaining | | Aggregate | ||||
| | | | Exercise | | Contractual | | Intrinsic | | | | Exercise | | Contractual | | Intrinsic | ||||
| | Shares | | Price | | Terms | | Value | | Shares | | Price | | Terms | | Value | ||||
Options outstanding at December 31, 2020 | | 10,284,498 | | $ | 5.78 | | 7.8 | | $ | 289,316 | ||||||||||
Options outstanding at December 31, 2021 | | 9,786,909 | | $ | 11.65 | | 7.70 | | $ | 172,412 | ||||||||||
Granted | | 698,500 | | | 46.82 | | — | | | — | | 759,851 | | | 24.42 | | — | | | — |
Exercised | | (1,812,099) | | | 2.65 | | — | | | — | | (276,141) | | | 2.76 | | — | | | — |
Forfeited | | (5,833) | | | 6.78 | | — | | | — | | (106,000) | | | 24.68 | | — | | | — |
Expired | | — | | | — | | — | | | — | ||||||||||
Options outstanding at June 30, 2021 | | 9,165,066 | | $ | 9.51 | | 7.9 | | $ | 226,164 | ||||||||||
Options exercisable at June 30, 2021 | | 2,523,341 | | | 2.17 | | 5.6 | | | 80,808 | ||||||||||
Options outstanding at June 30, 2022 | | 10,164,619 | | $ | 12.67 | | 7.39 | | $ | 75,300 | ||||||||||
Options exercisable at June 30, 2022 | | 4,752,711 | | | 6.22 | | 6.16 | | | 55,015 | ||||||||||
Options unvested at June 30, 2022 | | 5,411,908 | | $ | 18.40 | | 8.48 | | $ | 20,285 |
The weighted average grant-date fair value of the service stock options granted during the three months ended June 30, 2022 and 2021 was $16.22 and $29.23, respectively. The weighted average grant-date fair value of the service stock options granted during the six months ended June 30, 2022 and 2021 was $15.68 and $46.67, respectively. The total intrinsic fair value of service stock options exercised during the six months ended June 30, 2022 and 2021 was $4.1 million and $100.0 million, respectively. The total fair value of the service stock options that vested during the three months ended
2932
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair value of options granted during the three months ended June 30, 20212022 and 2020 was $29.23 and $4.88, respectively. The weighted average grant-date fair value of options granted during the six months ended June 30, 2021 and 2020 was $46.67 and $7.73, respectively. As of June 30, 2021, there was approximately $38.3$0.5 million of unrecognized compensation cost related to stock option awards to be recognized over the next three years.and $0.4 million, respectively. The total fair value of stock options that vested during the three months ended June 30, 2021 and 2020 was approximately $432 thousand and $493 thousand, respectively. The total fair value ofservice stock options that vested during the six months ended June 30, 20212022 and 20202021 was approximately $520 thousand$6.2 million and $516 thousand,$0.5 million, respectively.
RestrictedCompensation cost associated with service stock options represented approximately $6.5 million and $4.3 million of the total share-based payment expense recorded for the three months ended June 30, 2022 and 2021, respectively. Compensation cost associated with service stock options represented approximately $12.4 million and $7.6 million of the total share-based payment expense recorded for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, there was approximately $43.6 million of unrecognized compensation cost related to service stock option awards generally vest in equal installmentsto be recognized over athe weighted average remaining period of 1.96 years.
Performance Stock Option Awards
one to three years. Restricted
Compensation cost associated with performance stock awards are valued based on the closing priceoptions represented approximately $25.3 million and $0 of the Company’s commontotal share-based payment expense recorded for the three months ended June 30, 2022 and 2021, respectively. Compensation cost associated with performance stock onoptions represented approximately $50.4 million and $0 of the datetotal share-based payment expense recorded for the six months ended June 30, 2022 and 2021, respectively. As of grant, andJune 30, 2022, there was approximately $99.8 million of unrecognized compensation cost is recorded on a straight-line basisrelated to performance stock option awards to be recognized over the share vesting period. weighted average remaining period of 2.23 years. There were 0 new grants of performance stock option awards for the six months ended June 30, 2022.
Restricted Stock Awards
The Company recorded expense associated with its restricted stock awards of approximately $6.8$10.9 million and $932 thousand,$6.8 million for the three months ended June 30, 20212022 and 2020,2021, respectively. The Company recorded expense associated with its restricted stock awards of approximately $12.0$20.7 million and $2.0$12.0 million for the six months ended June 30, 20212022 and 2020,2021, respectively. Additionally, for the six months endedas of June 30, 2021 and 2020,2022, there was $67.0$77.7 million and $6.9 million, respectively, of unrecognized compensation cost related to restricted stock awards to be recognized over the next threeweighted average period of 1.47 years.
A summary of restricted stock activity for the yearsix months ended June 30, 20212022 is as follows (in thousands except share amounts):
| | | | | | | | | | | | | | | |
|
| |
| Aggregate |
|
| | | Weighted |
| Aggregate |
| |||
| | | | Intrinsic | | | | | Average Grant Date | | Intrinsic | | |||
| | Shares | | Value | | | Shares | | Fair Value | | Value | | |||
Unvested restricted stock at December 31, 2020 | | 5,874,642 | | $ | — | | |||||||||
Unvested restricted stock at December 31, 2021 | | 4,851,873 | | $ | 21.59 | | $ | — | | ||||||
Granted | | 653,000 | | | — | | | 1,126,491 | | | 24.30 | | | — | |
Vested | | (149,650) | | | — | | | (265,500) | | | 33.37 | | | — | |
Forfeited | | (5,833) | | | — | | | (96,584) | | | 25.83 | | | — | |
Unvested restricted stock at June 30, 2021 | | 6,372,159 | | $ | 217,864 | | |||||||||
Unvested restricted stock at June 30, 2022 | | 5,616,280 | | $ | 18.84 | | $ | 92,049 | |
The weighted average grant-date fair value of the restricted stock awards granted during the three months ended June 30, 2022 and 2021, was $25.49 and $26.08, respectively. The weighted average grant-date fair value of the restricted stock awards granted during the six months ended June 30, 2022 and 2021, was $24.30 and $43.05, respectively. The total fair value of restricted stock awards vested for the three months ended June 30, 2022, and 2021 was $0.6 million and $3.9 million, respectively. The total fair value of restricted stock awards vested for the six months ended June 30, 2022, and 2021 was $8.9 million and $4.4 million, respectively.
401(k) Savings & Retirement Plan
The Company offers a 401(k) Savings & Retirement Plan to eligible employees meeting certain age and service requirements. This plan permits participants to contribute 100% of their salary, up to the maximum allowable by the Internal Revenue Service regulations. Participants are immediately vested in their voluntary contributions plus actual earnings or less actual losses thereon. Participants are vested in the Company’s matching contribution based on years of service completed. Participants are fully vested upon completion of three years of service. During 2018, the Company began funding its matching contribution in a combination of cash and common stock. The Company issued 12,513201,180 shares of common stock and 175,97812,513 shares of common stock pursuant to the Plug Power Inc. 401(k) Savings & Retirement Plan during the six months ended June 30, 20212022 and 2020,2021, respectively.
33
The Company’s expense for this plan was approximately $0.9$2.0 million, and $0.8$0.9 million for the three months ended June 30, 20212022 and 2020,2021, respectively. The Company’s expense for this plan was approximately $2.2$4.3 million and $1.3$2.2 million for the six months ended June 30, 20212022 and 2020,2021, respectively.
Non-Employee Director Compensation
Each non-employee director is paid an annual retainer for his or her service, in the form of either cash or stock compensation. The Company granted 2,5856,650 shares of common stock and 7,6572,585 shares of common stock to non-employee directors as compensation for the three months ended June 30, 20212022 and 2020,2021, respectively. The Company granted 5,2389,940 shares of common stock and 22,4905,238 shares of common stock to non-employee directors as compensation for the six months ended June 30, 20212022 and 2020,2021, respectively. All common stock issued is fully vested at the time of issuance and is valued at fair value on the date of issuance. The Company’s share-based compensation expense in connection with non-employee director compensation was approximately $94 thousand$0.1 million and $55 thousand$0.1 million for the three months ended June 30, 2022 and 2021, and
30
2020, respectively. The Company’s share-based compensation expense in connection with non-employee director compensation was approximately $179 thousand$0.2 million and $111 thousand$0.2 million for the six months ended June 30, 20212022 and 2020,2021, respectively.
21. Subsequent EventsSegment Reporting
Our organization is managed from a sales perspective on the basis of “go-to-market” sales channels, emphasizing shared learning across end user applications and common supplier/vendor relationships. These sales channels are structured to serve a range of customers for our products and services. As a result of this structure, we concluded that we have 1 operating and reportable segment — the design, development and sale of fuel cells and hydrogen producing equipment. Our chief executive officer was identified as the chief operating decision maker (CODM). All significant operating decisions made by management are largely based upon the analysis of Plug Power Inc. on a total company basis.
| | | | | | | | | | | | | | | | | |
| Revenues | | Long-Lived Assets as of | ||||||||||||||
| Three Months Ended | | Six Months Ended | | | ||||||||||||
| June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | December 31, 2021 | ||||||
| | | | | | | | | | | | | | | | | |
North America | $ | 115,213 | | $ | 118,342 | | $ | 228,194 | | $ | 187,988 | | $ | 795,042 | | $ | 570,778 |
Other | | 36,054 | | | 6,215 | | | 63,876 | | | 8,527 | | | 5,231 | | | 2,778 |
Total | $ | 151,267 | | $ | 124,557 | | $ | 292,070 | | $ | 196,515 | | $ | 800,273 | | $ | 573,556 |
22. Subsequent Events
We have evaluated events as of August 5, 20219, 2022 and have not identified any subsequent events.
34
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our accompanying unaudited interim condensed consolidated financial statements and notes thereto included within this report, and our audited and notes thereto included in our 2020 19-K.2021 10-K. In addition to historical information, this Quarterly Report on Form 10-Q and the following discussion contain statements that are not historical facts and are considered forward-looking within the meaning of Section 27A of the Securities Act, of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).Act. These forward-looking statements contain projections of our future results of operations or of our financial position or state other forward-looking information. In some cases, you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “would,” “plan,” “projected” or the negative of such words or other similar words or phrases. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Investors are cautioned not to unduly rely on forward-looking statements because they involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including, but not limited to:
● | the risk that we continue to incur losses and might never achieve or maintain profitability; |
● | the risk that we will need to raise additional capital to fund our operations and such capital may not be available to us; |
● | the risk that we may not be able to expand our business or manage our future growth effectively; |
● | the risk that delays in or not completing our product development goals may adversely affect our revenue and profitability; |
● | The risk that we may be unable to successfully pursue, integrate, or execute upon our new business ventures. |
● | the risk of dilution to our stockholders and/or stock price should we need to raise additional capital; |
● | the risk that our lack of extensive experience in manufacturing and marketing products may impact our ability to manufacture and market products on a profitable and large-scale commercial basis; |
● | the risk that unit orders may not ship, be installed and/or converted to revenue, in whole or in part; |
● | the risk that a loss of one or more of our major customers, or if one of our major customers delays payment of or is unable to pay its receivables, a material adverse effect could result on our financial condition; |
● | the risk that a sale of a significant number of shares of stock could depress the market price of our common stock; |
● | the risk that our convertible senior notes, if settled in cash, could have a material effect on our financial results; |
● | the risk that our convertible note hedges may affect the value of our convertible senior notes and our common stock; |
● | the risk that negative publicity related to our business or stock could result in a negative impact on our stock value and profitability; |
● | the risk of potential losses related to any product liability claims or contract disputes; |
● | the risk of loss related to an inability to remediate the material |
● | the risk that the |
● | the risk of loss related to an inability to maintain an effective system of internal controls; |
● | our ability to attract and maintain key personnel; |
● | the risks related to the use of flammable fuels in our products; |
● | the risk that pending orders may not convert to purchase orders, in whole or in part; |
● | the cost and timing of developing, marketing and selling our products; |
● | the risks of delays in or not completing our product development goals; |
31
● | the risks involved with participating in joint ventures, including our ability or inability to execute our strategic growth plan through joint ventures; |
● | our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers; |
35
● | our ability to successfully pursue new business ventures; |
● | our ability to achieve the forecasted gross margin on the sale of our products; |
● | the cost and availability of fuel and fueling infrastructures for our products; |
● | the risks, liabilities, and costs related to environmental, health and safety matters; |
● | the risk of elimination of government subsidies and economic incentives for alternative energy products; |
● | market acceptance of our products and services, including GenDrive, GenSure and GenKey systems; |
● | our ability to establish and maintain relationships with third parties with respect to product development, manufacturing, distribution and servicing, and the supply of key product components; |
● | the cost and availability of components and parts for our products; |
● | the risk that possible new tariffs or sanctions could have a material adverse effect on our business; |
● | our ability to develop commercially viable products; |
● | our ability to reduce product and manufacturing costs; |
● | our ability to successfully market, distribute and service our products and services internationally; |
● | our ability to improve system reliability for our products; |
● | competitive factors, such as price competition and competition from other traditional and alternative energy companies; |
● | our ability to protect our intellectual property; |
● | the risk of dependency on information technology on our operations and the failure of such technology; |
● | the cost of complying with current and future federal, state and international governmental regulations; |
● | our subjectivity to legal proceedings and legal compliance; |
● | the risks associated with past and potential future acquisitions; |
● | the risks associated with geopolitical and global economic uncertainty, including the conflict between Russia and Ukraine, inflationary pressures, rising interest rates, and supply chain disruptions; and |
● | the volatility of our stock price. |
The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks discussed in the section titled “Risk Factors” included under Part I, Item 1A, below.in our 2021 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from these contained in any forward-looking statements. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. These forward-looking statements speak only as of the date on which the statements were made. Except as may be required by applicable law, we do not undertake or intend to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q.
References in this Quarterly Report on Form 10-Q to “Plug, Power,” the “Company,” “we,” “our” or “us” refer to Plug Power Inc., including as the context requires, its subsidiaries.
Overview
Plug Power is facilitating the paradigm shift to an increasingly electrified world by innovating cutting-edge hydrogen and fuel cell solutions. In our core business,While we provide and continue to develop commercially viablecommercially-viable hydrogen and fuel cell product solutions to replace lead-acid and lithium batteries in electric material handling vehicles and industrial trucks for some of the world’s largest retail-distribution and manufacturing businesses.businesses, we have expanded our offerings to support a variety of commercial operations that can be powered with green hydrogen. We also provide electrolyzers that allow customers — such as refineries, producers of chemicals, steel and fertilizer and commercial refueling stations — to generate hydrogen on-site. Additionally, we intend for our electrolyzers to be used to generate green hydrogen within Plug’s own plants that will then be sold to customers. We are focusing our efforts on industrial mobility applications, including electric forklifts and electric industrial vehicles, at multi-shift high volume manufacturing and high throughput distribution sites where we believe our products and services provide a unique combination of productivity, flexibility, and environmental benefits. Additionally, we manufacture and sell fuel cell products to replace batteries and diesel generators in stationary backup power applications. These products have proven valuable with telecommunications, transportation, and utility customers as robust, reliable, and sustainable power solutions.
Part of our long-term plan includes Plug Power penetrating the on-road vehicle market and large-scale stationary market. Plug Power’s formation of a joint venture with Renault in Europe and the announced future joint venture with SKback-up
3236
Group in Asia not only support this goal but are expected to provide uspower applications for telecommunications, transportation, and utility customers. Plug supports these markets with a more global footprint. Plug has been successful with acquisitions, strategic partnerships,an ecosystem of integrated products that make, transport, handle, dispense and joint ventures, and we plan to continue this mix. For example, we expect our relationships with Brookfield and Apex to provide us access to low-cost renewable energy, which is critical to produce low-cost greenuse hydrogen.
Our current products and services include:
GenDrive:
GenDrive: GenDrive is our hydrogen fueled PEMProton Exchange Membrane (“PEM”) fuel cell system, providing power to material handling electric vehicles, including classClass 1, 2, 3 and 6 electric forklifts, Automated Guided Vehicles (“AGVs”)(AGVs), and ground support equipment;equipment.
GenFuel:
GenFuel: GenFuel is our liquid hydrogen fueling delivery, generation, storage, and dispensing system;system.
GenCare:
GenCare: GenCare is our ongoing ‘internet“Internet of things’Things”-based maintenance and on-site service program for GenDrive fuel cell systems, GenSure fuel cell systems, GenFuel hydrogen storage and dispensing products and ProGen fuel cell engines;engines.
GenSure:
GenSure: GenSure is our stationary fuel cell solution providing scalable, modular PEM fuel cell power to support the backup and grid-support power requirements of the telecommunications, transportation, and utility sectors; GenSure High Power Fuel Cell Platform will support large scale stationary power and data center markets;markets.
GenKey:
GenKey: GenKey is our vertically integrated “turn-key” solution combining either GenDrive or GenSure fuel cell power with GenFuel fuel and GenCare aftermarket service, offering complete simplicity to customers transitioning to fuel cell power;power.
ProGen:
ProGen: ProGen is our fuel cell stack and engine technology currently used globally in mobility and stationary fuel cell systems, and as engines in electric delivery vans. This includes the Plug “MEA”,membrane electrode assembly, a critical component of the fuel cell stack used in zero-emission fuel cell electric vehicle engines; andengines.
GenFuel Electrolyzers: electrolyzers: GenFuel electrolyzers are modular, scalable hydrogen generators optimized for clean hydrogen production. Electrolyzers generate hydrogen from water using electricity and a special membrane and “green” hydrogen is generated by using renewable energy inputs, such as solar or wind power.
We provide our products and solutions worldwide through our direct product sales force, and by leveraging relationships with “OEMs”original equipment manufacturers (“OEMs”) and their dealer networks. Plug Power is currently targeting Asia, Australia, Europe, Middle East and EuropeNorth America for expansion in adoption. Europe has rolled out ambitious targets for the hydrogen economy and Plug Power is executingseeking to execute on its strategy to become one of the European leaders. This includes a targeted account strategy for material handling, as well as securing strategic partnerships with European OEMs, energy companies, utility leaders and accelerating our electrolyzer business. Our global strategy includes leveraging a network of integrators or contract manufacturers. We manufacture our commercially viable products in Latham, New York, Rochester, New York, Houston, Texas and Spokane, Washington and support liquid hydrogen generation and logistics in Charleston, Tennessee.
Our wholly-owned subsidiary,Part of our long-term plan includes Plug Power France,penetrating the on-road vehicle market and large-scale stationary market. Plug’s formation of joint ventures with HyVia and Acciona Plug S.L. in Europe and SK Plug Hyverse Co., Ltd., in Asia not only support this goal but are expected to provide us with a more global footprint. Plug has created abeen successful with acquisitions, strategic partnerships and joint venture with Renault SAS (“Renault”) named HyVia, a French société par actions simplifiée (“HyVia”). HyVia plansventures, and we plan to manufacture and sell fuel cell powered electric light commercial vehicles (“FCELCVs”) and to supply hydrogen fuel and fueling stations to support the FCE-LCV market, in each case primarily in Europe. HyVia is owned 50% by Plug Power France and 50% by Renault.continue this mix.
Recent Developments
COVID-19 Update
Starting on January 3, 2022, all U.S. based employees, including temporary employees were required to either be vaccinated against COVID-19, or be subject to weekly COVID-19 testing in an effort to stop the spread of COVID-19 and continue to protect our workforce. As a result of February 28, 2022, we discontinued the COVID-19 pandemic outbreak in March 2020, state governments—including those in New York and Washington, where our manufacturing facilities are located—issued orders requiring businesses that do not conduct essential services to temporarily close their physical workplaces toweekly testing for unvaccinated employees and customers. As a result, we hadremoved the mask requirement for fully vaccinated employees. Our positive cases declined significantly;
3337
putand that, combined with guidance from state and federal agencies resulted in placethe change in practice. We continue to monitor the situation, and remain prepared to adjust accordingly. On March 25, 2022, we transitioned our face-covering requirement to voluntary for all employees and visitors. Additionally, we removed our daily COVID-19 questionnaire and discontinued temperature monitoring as a number of protective measures in responsedaily requirement at our facilities. Employees are still expected to the COVID-19 outbreak, which included the canceling ofremain home if they are not feeling well and should contact our COVID team for future guidance. Furthermore, we have resumed all commercial air travel and all other non-critical travel, requesting thatwhile also allowing employees limit non-essentialto resume their personal travel, eliminating all but essentialtravel. We have enabled third-party access to our facilities, enhancingand are continuing our facilities’normal janitorial and sanitary procedures, encouraging employeesprocedures. We no longer are requiring staggered shifts in our manufacturing facilities and are offering hybrid work schedules to work from home to the extent theirthose whose job function enabled them to do so, encouraging the use of virtual employee meetings, and providing staggered shifts and social distancing measures for those employees associated with manufacturing and service operations. In May 2021, the Centers for Disease Control and Prevention (the “CDC”) revised guidance for fully vaccinated individuals regarding no longer needing to wear a mask indoors or practicing social distancing, which was subsequently adopted by the state of New York on May 19, 2021.
As a result, effective in June 2021 and in accordance with new CDC guidelines and where permitted by state law, employees who are fully vaccinated against COVID-19 and have been through Plug Power’s certification process may enter Plug Power facilities without a face covering. Individuals inside Plug Power facilities who do not wish to go through the certification process are required to wear proper face coverings and continue to maintain social distancing of 6 feet or greater. In states where the guidelines for face coverings is still government mandated, Plug Power will comply with the state and local jurisdictions and enforce face mask usage, as well as social distancing at our sites.
Plug Power will continue to provide enhanced janitorial and sanitary procedures, encourage employees to work from home to the extent their job function enables them to do so, and encourage the use of virtual employee meetings.so.
We cannot predict at this time the full extent to which COVID-19 and its related variants will continue to impact our business, results, and financial condition, which will depend on many factors. We are staying in close communication with our manufacturing facilities, employees, customers, suppliers, and partners, and acting to mitigate the impact of this dynamic and evolving situation, but there is no guarantee that we will be able to do so. Although as of the date hereof, we have not observed any material impacts to our supply of components, the situation is fluid. Many of the parts for our products are sourced from suppliers in China and the manufacturing situation in China remains variable. Supply chain disruptions could reduce the availability of key components, increase prices or both. Certainboth, as the COVID-19 pandemic has caused significant challenges for global supply chains resulting primarily in transportation delays. These transportation delays have caused incremental freight charges, which have negatively impacted our results of operations. We expect that these challenges will continue to have an impact on our businesses for the foreseeable future.
We continue to take proactive steps to limit the impact of these challenges and are working closely with our suppliers and transportation vendors to ensure availability of products and implement other cost savings initiatives. In addition, we continue to invest in our supply chain to improve its resilience with a focus on automation, dual sourcing of critical components and localized manufacturing when feasible. To date, there has been limited disruption to the availability of our customers,products, though it is possible that more significant disruptions could occur if these supply chain challenges continue.
Inflation, Material Availability and Labor Shortages
In the first half of 2022, we continued to experience higher than expected commodity costs and supply chain costs, including logistics, procurement, and manufacturing costs, largely due to inflationary pressures. We expect this cost inflation to remain elevated through at least the remainder of 2022.
Our operations require significant amounts of necessary parts and raw materials. From time to time, the Company may encounter difficulties in obtaining certain raw materials or components necessary for production due to supply chain constraints and logistical challenges, which may also negatively impact the pricing of materials and components sourced or used by the Company. Additionally, conflicts abroad, such as Walmart, significantlythe Russia-Ukraine conflict, may potentially contribute to issues related to supply chain disruptions and inflation impacts. While the Company does not currently anticipate any significant, broad-based difficulties in obtaining raw materials or components necessary for production, there have been supply chain and logistical challenges that have resulted in supply constraints and commodity price increases on certain raw materials and components used by the Company in production, as well as increased their use of unitsprices for freight and hydrogen fuel consumptionlogistics, including air, sea and ground freight. Consequently, the Company may experience supply shortages for raw materials or components in the future, which could be further exacerbated by increased commodity prices as a result of COVID-19. In the threeadditional inflationary pressures. Although we have offset a portion of these increased costs through price increases and six months ended June 30, 2021operational efficiencies to date, there can be no assurance that we will be able to continue to do so. If we are unable to manage fluctuations through pricing actions, cost savings projects, and the twelve months ended December 31, 2020,sourcing decisions as well as through productivity improvements, it may adversely impact our servicesgross margins in future periods.
Additionally, we have observed an increasingly competitive labor market. Tight labor markets have resulted in labor inflation and PPA margins were negatively impacted by incremental service costs associated with increased usage of units at some of our primary customer sites. In addition, future changes in applicable government orders or regulations, orlonger times to fill open positions. Increased employee turnover, changes in the interpretationavailability of existing orders or regulations,our workers, including as a result of COVID-19-related absences, and labor shortages in our supply chain have resulted in, and could continue to result in, further disruptions to our business that may materially and adverselyincreased costs which could negatively affect our financial condition, and results of operations.
Strategic Activities
On June 3, 2021, our wholly-owned subsidiary, Plug Power France, created a joint venture with Renault named HyVia. HyVia plans to manufacture and sell FCELCVs and to supply hydrogen fuel and fueling stations to support the FCE-LCV market, in each case primarily in Europe. HyVia is owned 50% by Plug Power France and 50% by Renault. We include our share of the results of HyVia using the equity method based on our economic ownership interest and our ability to exercise significant influence over the operating and financial decisions of HyVia. We do not control this entity as our ownership is 50%, and as such HyVia is not included within our consolidated financial results for any period presented.
Charter Amendment
On July 30, 2021, our stockholders, upon recommendation of our Board of Directors, approved an amendment to our Amended and Restated Certificate of Incorporation (the “Charter Amendment”) to increase the number of authorized shares of common stock from 750,000,000 shares to 1,500,000,000 shares. The Charter Amendment became effective upon the filing of the Charter Amendment with the Secretary of the State of the State of Delaware on August 2, 2021.
operations, or cash flows.
3438
Explanatory Note
As previously disclosed in the Explanatory Note to the 2020 10-K, the Company restated its previously issued audited consolidated financial statements as of and for the years ended December 31, 2019 and 2018 and its unaudited interim condensed consolidated quarterly financial statements of and for each of the quarterly periods ended March 31, 2020, June 30, 2020 and 2019, September 30, 2020 and 2019 and December 31, 2019.
Previously filed annual reports on Form 10-K and quarterly reports on Form 10-Q for the periods affected by the restatement have not been amended. Accordingly, investors should not rely upon the Company’s previously released financial statements for these periods and any earnings releases or other communications relating to these periods, and, for these periods, investors should rely solely on the financial statements and other financial data for the relevant periods included in the 2020 10-K. Commencing with our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, we are including in our quarterly reports for fiscal 2021 restated results for the corresponding interim periods of fiscal 2020.
Results of Operations
Our primary sources of revenue are from sales of fuel cell systems, and related infrastructure and equipment, services performed on fuel cell systems and related infrastructure, Power Purchase Agreements (PPAs), and fuel delivered to customers. A certain portion of our sales result from acquisitions in legacy markets, which we are working to transition to renewable solutions. Revenue from sales of fuel cell systems, and related infrastructure and equipment represents sales of our GenDrive units, GenSure stationary backup power units, as well ascryogenic stationary and onroad storage, electrolyzers and hydrogen fueling infrastructure. Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. Revenue from PPAs primarily represents payments received from customers who make monthly payments to access the Company’s GenKey solution. Revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the Company from a third party or generated on site.
Based on historical experience, the Company experiences seasonality with respect to its revenue, with more revenue typically recognized in the second half of the fiscal year as compared to the first half.
Net revenue, cost of revenue, gross profit (loss) and gross margin (loss) percentage for the three and six months ended June 30, 20212022 and 2020,2021, were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | | |
| | | | | | | | |
| Three Months Ended | | Six Months Ended | ||||||||||||||||||||
| June 30, | | June 30, | ||||||||||||||||||||
| | | | Cost of |
| Gross |
| Gross | | | | | | Cost of |
| Gross |
| Gross | | ||||
| Net Revenue | | Revenue | | Profit/(Loss) | | Margin |
| | Net Revenue | | Revenue | | Profit/(Loss) | | Margin |
| ||||||
For the period ended June 30, 2021: | | | | | | | | | | | | | | | | | | | | | | | |
Sales of fuel cell systems and related infrastructure | $ | 99,278 | | $ | 79,913 | | $ | 19,365 |
| 19.5 | % | | $ | 146,050 | | $ | 108,887 | | $ | 37,163 |
| 25.4 | % |
Services performed on fuel cell systems and related infrastructure |
| 5,675 | |
| 15,475 | |
| (9,800) |
| (172.7) | % | |
| 11,720 | |
| 28,561 | |
| (16,841) |
| (143.7) | % |
Provision for loss contracts related to service | | — | | | 6,694 | | | (6,694) | | N/A | | | | — | | | 8,179 | | | (8,179) | | N/A | |
Power Purchase Agreements |
| 8,361 | |
| 22,234 | |
| (13,873) |
| (165.9) | % | |
| 16,187 | |
| 40,577 | |
| (24,390) |
| (150.7) | % |
Fuel delivered to customers |
| 11,121 | |
| 40,331 | |
| (29,210) |
| (262.6) | % | |
| 22,248 | |
| 62,474 | |
| (40,226) |
| (180.8) | % |
Other |
| 122 | |
| 208 | |
| (86) |
| (70.5) | % | |
| 310 | |
| 306 | |
| 4 |
| 1.3 | % |
Total | $ | 124,557 | | $ | 164,855 | | $ | (40,298) |
| (32.4) | % | | $ | 196,515 | | $ | 248,984 | | $ | (52,469) |
| (26.7) | % |
For the period ended June 30, 2020: | | | | | | | | | | | | | | | | | | | | | | | |
Sales of fuel cell systems and related infrastructure | $ | 47,746 | | $ | 33,888 | | $ | 13,858 |
| 29.0 | % | | $ | 68,214 | | $ | 47,862 | | $ | 20,352 |
| 29.8 | % |
Services performed on fuel cell systems and related infrastructure |
| 6,236 | |
| 7,773 | |
| (1,537) |
| (24.6) | % | |
| 12,757 | |
| 18,120 | |
| (5,363) |
| (42.0) | % |
Provision for loss contracts related to service | | — | | | 706 | | | (706) | | N/A | | | | — | | | 801 | | | (801) | | N/A | |
Power Purchase Agreements |
| 6,579 | |
| 14,504 | |
| (7,925) |
| (120.5) | % | |
| 13,000 | |
| 29,275 | |
| (16,275) |
| (125.2) | % |
Fuel delivered to customers |
| 7,372 | |
| 11,076 | |
| (3,704) |
| (50.2) | % | |
| 14,705 | |
| 22,330 | |
| (7,625) |
| (51.9) | % |
Other |
| 62 | |
| 63 | |
| (1) |
| (1.6) | % | |
| 138 | |
| 144 | |
| (6) |
| (4.3) | % |
Total | $ | 67,995 | | $ | 68,010 | | $ | (15) |
| (0.0) | % | | $ | 108,814 | | $ | 118,532 | | $ | (9,718) |
| (8.9) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | | |
| | | | | | | | |
| Three Months Ended | | Six Months Ended | ||||||||||||||||||||
| June 30, | | June 30, | ||||||||||||||||||||
| | | | Cost of |
| Gross |
| Gross | | | | | | Cost of |
| Gross |
| Gross | | ||||
| Net Revenue | | Revenue | | Profit/(Loss) | | Margin |
| | Net Revenue | | Revenue | | Profit/(Loss) | | Margin |
| ||||||
For the period ended June 30, 2022: | | | | | | | | | | | | | | | | | | | | | | | |
Sales of fuel cell systems, related infrastructure and equipment | $ | 116,233 | | $ | 94,153 | | $ | 22,080 |
| 19.0 | % | | $ | 225,080 | | $ | 182,981 | | $ | 42,099 |
| 18.7 | % |
Services performed on fuel cell systems and related infrastructure |
| 8,822 | |
| 11,612 | |
| (2,790) |
| (31.6) | % | |
| 17,062 | |
| 25,487 | |
| (8,425) |
| (49.4) | % |
Provision for loss contracts related to service | | — | | | 1,068 | | | (1,068) | | N/A | | | | — | | | 3,116 | | | (3,116) | | N/A | |
Power purchase agreements |
| 11,169 | |
| 34,892 | |
| (23,723) |
| (212.4) | % | |
| 21,206 | |
| 66,645 | |
| (45,439) |
| (214.3) | % |
Fuel delivered to customers and related equipment |
| 14,472 | |
| 41,607 | |
| (27,135) |
| (187.5) | % | |
| 27,900 | |
| 80,879 | |
| (52,979) |
| (189.9) | % |
Other |
| 571 | |
| 400 | |
| 171 |
| 29.9 | % | |
| 822 | |
| 777 | |
| 45 |
| 5.5 | % |
Total | $ | 151,267 | | $ | 183,732 | | $ | (32,465) |
| (21.5) | % | | $ | 292,070 | | $ | 359,885 | | $ | (67,815) |
| (23.2) | % |
For the period ended June 30, 2021: | | | | | | | | | | | | | | | | | | | | | | | |
Sales of fuel cell systems, related infrastructure and equipment | $ | 99,278 | | $ | 79,913 | | $ | 19,365 |
| 19.5 | % | | $ | 146,050 | | $ | 108,887 | | $ | 37,163 |
| 25.4 | % |
Services performed on fuel cell systems and related infrastructure |
| 5,675 | |
| 15,475 | |
| (9,800) |
| (172.7) | % | |
| 11,720 | |
| 28,561 | |
| (16,841) |
| (143.7) | % |
Provision for loss contracts related to service | | — | | | 6,694 | | | (6,694) | | N/A | | | | — | | | 8,179 | | | (8,179) | | N/A | |
Power purchase agreements |
| 8,361 | |
| 22,234 | |
| (13,873) |
| (165.9) | % | |
| 16,187 | |
| 40,577 | |
| (24,390) |
| (150.7) | % |
Fuel delivered to customers and related equipment |
| 11,121 | |
| 40,331 | |
| (29,210) |
| (262.7) | % | |
| 22,248 | |
| 62,474 | |
| (40,226) |
| (180.8) | % |
Other |
| 122 | |
| 208 | |
| (86) |
| (70.5) | % | |
| 310 | |
| 306 | |
| 4 |
| 1.3 | % |
Total | $ | 124,557 | | $ | 164,855 | | $ | (40,298) |
| (32.4) | % | | $ | 196,515 | | $ | 248,984 | | $ | (52,469) |
| (26.7) | % |
35
The amount of provision for common stock warrants recorded as a reduction of revenue during the three and six months ended June 30, 20212022 and 2020,2021, respectively, is shown in the table below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | Six months ended June 30, | | Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales of fuel cell systems and related infrastructure | | $ | — | | $ | (2,497) | | $ | (27) | | $ | (3,141) | | |||||||||||||
Sales of fuel cell systems, related infrastructure and equipment | | $ | (102) | | $ | — | | $ | (119) | | $ | (27) | | |||||||||||||
Services performed on fuel cell systems and related infrastructure | |
| (131) | |
| (466) | |
| (271) | |
| (724) | | |
| (181) | |
| (131) | |
| (331) | |
| (271) | |
Power Purchase Agreements | |
| (902) | |
| (578) | |
| (1,802) | |
| (1,129) | | |||||||||||||
Power purchase agreements | |
| (1,035) | |
| (902) | |
| (2,009) | |
| (1,802) | | |||||||||||||
Fuel delivered to customers | |
| (714) | |
| (824) | |
| (1,352) | |
| (1,578) | | |
| (772) | |
| (714) | |
| (1,483) | |
| (1,352) | |
Total | | $ | (1,747) | | $ | (4,365) | | $ | (3,452) | | $ | (6,572) | | | $ | (2,090) | | $ | (1,747) | | $ | (3,942) | | $ | (3,452) | |
39
Net Revenue
Revenue – sales of fuel cell systems, and related infrastructure and equipment. Revenue from sales of fuel cell systems, and related infrastructure and equipment represents revenue from the sale of our fuel cells, such as GenDrive units and GenSure stationary backup power units, as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations.installations, electrolyzers and other equipment such as cryogenic storage equipment. Revenue from sales of fuel cell systems, and related infrastructure and equipment for the three months ended June 30, 20212022 increased $51.5$17.0 million, or 107.9%17.1%, to $99.3$116.2 million from $47.8 million for the three months ended June 30, 2020. Included within revenue was provision for common stock warrants of zero and $2.5$99.3 million for the three months ended June 30, 2021 due to the inclusion of revenue of acquired businesses. The total revenue generated by Applied Cryo, Frames and 2020, respectively. The main driversJoule was approximately $46.8 million for the three months ended June 30, 2022. There was no revenue recognized in the second quarter of 2021 related to these acquisitions. Offsetting the increase in revenue werefrom acquisitions was a decrease in revenue related to the increase in GenDrivenumber of GenDrives units and hydrogen installations recognized as revenue an increase in hydrogen installations and a decrease in the provision for common stock warrants.three months ended June 30, 2022 compared to the three months ended June 30, 2021 due to a variation of timing in deployments. There were 3,6661,258 GenDrive units recognized as revenue during the three months ended June 30, 2021,2022, compared to 2,6833,666 for the three months ended June 30, 2020.2021. There was hydrogen infrastructure revenue associated with 1610 hydrogen sites during the three months ended June 30, 2021,2022, compared to four16 during the three months ended June 30, 2020.2021.
Revenue from sales of fuel cell systems, and related infrastructure and equipment for the six months ended June 30, 2022 increased $79.0 million, or 54.1%, to $225.1 million from $146.1 million for the six months ended June 30, 2021 increased $77.8 million, or 114.1%,due to $146.1 million from $68.2the inclusion of revenue of acquired businesses. The total revenue generated by Applied Cryo, Frames and Joule was approximately $86.9 million for the six months ended June 30, 2020. Included within2022. There was no revenue recognized in the second quarter of 2021 related to these acquisitions. Offsetting the increase in revenue from acquisitions was provision for common stock warrantsa decrease in revenue related to the number of $27 thousandGenDrives units and $3.1 million forhydrogen installations recognized as revenue in the threesix months ended June 30, 2022 compared to the six months ended June 30, 2021 and 2020, respectively. The main drivers for the increasedue to a variation of timing in revenue were the increase in GenDrive units recognized as revenue, an increase in hydrogen installations and a decrease in the provision for common stock warrants.deployments. There were 4,9742,487 GenDrive units recognized as revenue during the six months ended June 30, 2021,2022, compared to 3,5084,974 for the six months ended June 30, 2020.2021. There was hydrogen infrastructure revenue associated with 2217 hydrogen sites during the three months ended June 30, 2022, compared to 22 during the six months ended June 30, 2021, compared to five during the six months ended June 30, 2020.2021.
Revenue – services performed on fuel cell systems and related infrastructure. Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. At June 30, 2021,2022, there were 15,72319,038 fuel cell units and 7184 hydrogen installations under extended maintenance contracts, an increase from 11,55715,723 fuel cell units and 4771 hydrogen installations at June 30, 2020.2021. Revenue from services performed on fuel cell systems and related infrastructure for the three months ended June 30, 2021 decreased $0.62022 increased $3.1 million, or 9.0%55.5%, to $5.7$8.8 million as compared to $6.2$5.7 million for the three months ended June 30, 2020. Included within2021. The increase in revenue was provision for common stock warrants of $131 thousandfrom services performed on fuel cell systems and $466 thousandrelated infrastructure for the three months ended June 30, 2022 compared to 2021 was primarily related to our expanding customer base and 2020, respectively. The main driversgrowth within in decrease in revenue was a reduction in billings for run time hours that exceeded certain levels given certain changes in the overall contract, partially offset by the decrease in the provision for common stock warrants. Although the number of units and sites grew year over year, many of the units and sites deployed in the second quarter of 2021 were deployed late in the quarter and hence the full impact of associated service revenues will commence in the third quarter of 2021.our current customer base.
Revenue from services performed on fuel cell systems and related infrastructure for the six months ended June 30, 2021 decreased $1.02022 increased $5.3 million, or 8.1%45.6%, to $11.7$17.1 million as compared to $12.8$11.7 million for the six months ended June 30, 2020. Included within2021. The increase in revenue was provision for common stock warrants of $271 thousandfrom services performed on fuel cell systems and $724 thousandrelated infrastructure for the six months ended June 30, 2022 compared to 2021 was primarily related to our expanding customer base and 2020, respectively. The main driversgrowth within in decrease in revenue was a reduction in billings for run time hours that exceeded certain levels given certain changes in the overall contract, partially offset by the decrease
36
in the provision for common stock warrants. Although the number of units and sites grew year over year, many of the units and sites deployed in the second quarter of 2021 were deployed late in the quarter and hence the full impact of associated service revenues will commence in the third quarter of quarter 2021.our current customer base.
Revenue – Power Purchase Agreements. Revenue from PPAs represents payments received from customers for power generated through the provision of equipment and service. At June 30, 2021,2022, there were 5282 GenKey sites associated with PPAs, as compared to 3252 at June 30, 2020.2021. Revenue from PPAs for the three months ended June 30, 20212022 increased $1.8$2.8 million, or 27.1%33.6%, to $8.4$11.2 million from $6.6$8.4 million for the three months ended June 30, 2020. Included within revenue was provision for common stock warrants of $902 thousand and $578 thousand for the three months ended June 30, 2021 and 2020, respectively.2021. The increase in revenue from PPAs for the three months ended June 30, 20212022 as compared to the three months ended June 30, 20202021 was primarily attributable to the new sites for existing customers and new customers accessing the PPA subscription solution, offset in part bysolution. All of the increasenew PPA sites in the provision for common stock warrants.second quarter of 2022 were not deployed until late in the quarter; therefore, the full impact on revenue has yet to be realized.
40
Revenue from PPAs for the six months ended June 30, 20212022 increased $3.2$5.0 million, or 24.5%31.0%, to $16.2$21.2 million from $13.0$16.2 million for the six months ended June 30, 2020. Included within revenue was provision for common stock warrants of $1.8 million and $1.1 million for the six months ended June 30, 2021 and 2020, respectively.2021. The increase in revenue from PPAs for the six months ended June 30, 20212022 as compared to the six months ended June 30, 20202021 was primarily attributable to the new sites for existing customers and new customers accessing the PPA subscription solution, offset in part bysolution. All of the increasenew PPA sites in the provision for common stock warrants.second quarter of 2022 were not deployed until late in the quarter; therefore, the full impact on revenue has yet to be realized.
Revenue – fuel delivered to customers and related equipment. Revenue associated with fuel delivered to customers and related equipment represents the sale of hydrogen to customers that has been purchased by the Company from a third party or generated on site. Revenue associated with fuel delivered to customers for the three months ended June 30, 20212022 increased $3.7$3.4 million, or 50.9%30.1%, to $11.1$14.5 million from $7.4$11.1 million for the three months ended June 30, 2020. Included within revenue was provision for common stock warrants of $714 thousand and $824 thousand for the three months ended June 30, 2021 and 2020, respectively.2021. The increase in revenue was due to an increase in the number of sites with fuel contracts from 81 as of June 30, 2020 to 125 as of June 30, 2021 and a slight decreaseto 169 as of June 30, 2022. All of the new fuel sites in the provision for common stock warrants.second quarter of 2022 were not deployed until late in the quarter; therefore, the full impact on revenue has yet to be realized.
Revenue associated with fuel delivered to customers for the six months ended June 30, 20212022 increased $7.5$5.7 million, or 51.3%25.4%, to $22.3$27.9 million from $14.7$22.3 million for the six months ended June 30, 2020. Included within revenue was provision for common stock warrants of $1.4 million and $1.6 million for the six months ended June 30, 2021 and 2020, respectively.2021. The increase in revenue was due to an increase in the number of sites with fuel contracts from 81 as of June 30, 2020 to 125 as of June 30, 2021 and a slight decreaseto 169 as of June 30, 2022. All of the new fuel sites in the provision for common stock warrants.second quarter of 2022 were not deployed until late in the quarter; therefore, the full impact on revenue has yet to be realized.
Cost of Revenue
Cost of revenue – sales of fuel cell systems, and related infrastructure and equipment. Cost of revenue from sales of fuel cell systems, and related infrastructure and equipment includes direct materials, labor costs, and allocated overhead costs related to the manufacture of our fuel cells such as GenDrive units and GenSure stationary backup power units, andas well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations.installations, electrolyzers and other equipment such as cryogenic storage equipment. Cost of revenue from sales of fuel cell systems, and related infrastructure and equipment for the three months ended June 30, 20212022 increased 135.8%17.8%, or $46.0$14.2 million, to $79.9$94.2 million, compared to $33.9$79.9 million for the three months ended June 30, 2020.2021. This increase was driven by the increase in GenDrive deployment volumeacquisitions of Applied Cryo, Joule and increase in hydrogen installations.Frames. There were 3,6661,258 GenDrive units recognized as revenue during the three months ended June 30, 2021,2022, compared to 2,6833,666 for the three months ended June 30, 2020. Revenue associated with 16 hydrogen installations was recognized during the three months ended June 30, 2021, compared to four during the three months ended June 30, 2020.2021. Gross profit generated from sales of fuel cell systems and related infrastructure decreased to 19.0% for the three months ended June 30, 2022, compared to 19.5% for the three months ended June 30, 2021 compared to 29.0% for the three months ended June 30, 2020 primarily due to increased freight and higher labor costs given an increasingly competitive labor market and COVID-19 related staffing and coverage issues. Additionally, the mix impact ofmargin on the equipment sold with varying margin profiles, including a higher mixrevenue from recently acquired businesses was lower than our legacy equipment margins given the focus on integrating and scaling these new businesses. A certain portion of infrastructure and other new products, and mixour sales for the sales of customer profiles with varying pricing structures.engineered equipment are from an acquisition; the sales of engineered equipment from an acquisition are not expected to continue beyond current commitments.
Cost of revenue from sales of fuel cell systems, and related infrastructure and equipment for the six months ended June 30, 20212022 increased 127.5%68.0%, or $61.0$74.1 million, to $108.9$183.0 million, compared to $47.9$108.9 million for the six months ended June 30, 2020.2021. This increase was driven by the increase in GenDrive deployment volumeacquisitions of Applied Cryo, Joule and increase in hydrogen installations.Frames. There
37
were 4,9742,487 GenDrive units recognized as revenue during the six months ended June 30, 2021,2022, compared to 3,5084,974 for the six months ended June 30, 2020. Revenue associated with 22 hydrogen installations was recognized during the six months ended June 30, 2021, compared to five during the six months ended June 30, 2020.2021. Gross profit generated from sales of fuel cell systems and related infrastructure decreased to 18.7% for the six months ended June 30, 2022, compared to 25.4% for the six months ended June 30, 2021 compared to 29.8% for the six months ended June 30, 2020 primarily due to increased freight and material cost largely due to inflationary pressures, and higher labor costs given an increasingly competitive labor market and COVID-19 related staffing and coverage issues. Additionally, the mix impact ofmargin on the equipment sold with varying margin profiles, including a higher mixrevenue from recently acquired businesses was lower than our legacy equipment margins given the focus on integrating and scaling these new businesses. The sales of infrastructure and other new products, and mix of customer profiles with varying pricing structures.engineered equipment from an acquisition are not expected to continue beyond current commitments.
Cost of revenue – services performed on fuel cell systems and related infrastructure. Cost of revenue from services performed on fuel cell systems and related infrastructure includes the labor, material costs and allocated overhead costs incurred for our product service and hydrogen site maintenance contracts and spare parts. At June 30, 2021,2022, there were 15,72319,038 fuel cell units and 7184 hydrogen installations under extended maintenance contracts, an increase from 11,557 15,723
41
fuel cell units and 4771 hydrogen installations at June 30, 2020,2021, respectively. Cost of revenue from services performed on fuel cell systems and related infrastructure for the three months ended June 30, 2021 increased 99.1%2022 decreased 25.0%, or $7.7$3.9 million, to $15.5$11.6 million, compared to $7.8$15.5 million for the three months ended June 30, 2020.2021. The increase in cost of revenue was due primarily to the increase in volume and certain unexpected costs, including varied COVID related issues such as increased freight costs, certain vendor transition and force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts.install base. Gross loss increaseddecreased to (172.7)%(31.6%) for the three months ended June 30, 2022, compared to (172.7%) for the three months ended June 30, 2021, compared to (24.6)% for the three months ended June 30, 2020, primarily due to certain unexpected costs, including varied COVID related issues, certain vendor transition and force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts, partially offset by a change in the release of the previously recorded loss accrual from $300 thousand during the three months ended June 30, 2020 to $1.9 million during the three months ended June 30, 2021.recorded in prior periods.
Cost of revenue from services performed on fuel cell systems and related infrastructure for the six months ended June 30, 2021 increased 57.6%2022 decreased 10.8%, or $10.4$3.1 million, to $28.6$25.5 million, compared to $18.1$28.6 million for the six months ended June 30, 2020.2021. The increase in cost of revenue was due primarily to certain unexpected costs, including varied COVID related issues such as increased freight costs, certain vendor transition and force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts.the increase in install base. Gross loss increaseddecreased to (143.7)%(49.4%) for the six months ended June 30, 2022, compared to (143.7%) for the six months ended June 30, 2021, compared to (42.0)% for the six months ended June 30, 2020, primarily due to certain unexpected costs including varied COVID related issues, certain vendor transition and force majeure issues that impacted hydrogen infrastructure service costs, and a lower of cost or market adjustment associated with certain parts. This was partially offset by athe release of the previously recorded loss accrual from $524 thousand during the six months ended June 30, 2020 to $3.8 million during the six months ended June 30, 2021.recorded in prior periods.
Cost of revenue – provision for loss contracts related to service. The Company also recorded a provision for loss contracts related to service of $1.1 million for the three months ended June 30, 2022, compared to $6.7 million for the three months ended June 30, 2021, comparedrelated primarily to $0.7 million for the three months ended June 30, 2020. The provision increased as a result of 16 new sites under service contractcontracts entered into during the three months ended June 30, 2021 as compared to four sites for the three months ended June 30, 2020.second quarter of 2022.
The Company also recorded a provision for loss contracts related to service of $3.1 million for the six months ended June 30, 2022, compared to $8.2 million for the six months ended June 30, 2021, comparedrelated primarily to $0.8 million for the six months ended June 30, 2020. The provision increased as a result of 22 new sites under service contractcontracts entered into during the six months ended June 30, 2021 as compared to five sites during the six months ended June 30, 2020.second quarter of 2022.
Cost of revenue – Power Purchase Agreements. Cost of revenue from PPAs includes depreciation of assets utilized and service costs to fulfill PPA obligations and interest costs associated with certain financial institutions for leased equipment. At June 30, 2021,2022, there were 5282 GenKey sites associated with PPAs, as compared to 3252 at June 30, 2020.2021. Cost of revenue from PPAs for the three months ended June 30, 20212022 increased 53.3%56.9%, or $7.7$12.7 million, to $22.2$34.9 million from $14.5$22.2 million for the three months ended June 30, 20202021 due to the increase in units and sites under PPA contract as well as certain COVIDinflation and COVID-19 related issues such as increased freight costs, certain force majeure issues that impacted hydrogen infrastructure service costs and scrap charges associated with certain parts. Gross loss increased to (165.9)%(212.4%) for the three months ended June 30, 2022, as compared to (165.9%) for the three months ended June 30, 2021 as compared to (120.5)% for the three months ended June 30, 2020 primarily due to certain
38
COVID inflation and COVID-19 related issues, certain force majeure issues that impacted hydrogen infrastructure service costs,such as increased freight charges, and a lower of cost or market adjustmentscrap charges associated with certain parts.
Cost of revenue from PPAs for the six months ended June 30, 20212022 increased 38.6%64.2%, or $11.3$26.1 million, to $40.6$66.7 million from $29.3$40.6 million for the six months ended June 30, 2020 primarily2021 due to the increase in units and sites under PPA contract as well as certain COVIDinflation and COVID-19 related issues such as increased freights costs, certain force majeure issues that impacted hydrogen infrastructure servicefreight costs and scrap charges associated with certain parts. Gross loss increased to (150.7)%(214.3%) for the six months ended June 30, 2022, as compared to (150.7%) for the six months ended June 30, 2021 as compared to (125.2)% for the six months ended June 30, 2020 primarily due to certain COVIDinflation and COVID-19 related issues, certain force majeure issues that impacted hydrogen infrastructure service costs,such as increased freight charges, and a lower of cost or market adjustmentscrap charges associated with certain parts.
Cost of revenue – fuel delivered to customers and related equipment. Cost of revenue from fuel delivered to customers and related equipment represents the purchase of hydrogen from suppliers that ultimately is sold to customers and costs for onsite generation. Cost of revenue from fuel delivered to customers for the three months ended June 30, 20212022 increased 264.1%3.2%, or $29.3$1.3 million, to $40.3$41.6 million from $11.1$40.3 million for the three months ended June 30, 2020.2021. The increase was primarily due to higher volume of hydrogen delivered to customer sites as a result of an increase in the number of hydrogen installations completed under GenKey agreements, inefficiencies in fueling systems and higher fuel costs. The increase in fuel costs was due primarilygross loss decreased to vendor transition and force majeure events primarily related(187.5%) during the three months ended June 30, 2022, compared to hydrogen plant shutdowns that impacted the cost of fuel. Gross loss increased to (262.6)%(262.7%) during the three months ended June 30, 2021, compared to (50.2)% during the three months ended June 30, 2020. The increased gross loss is primarily due to theone-time vendor transition and force majeure issues mentioned above. The costs associated with vendor transition issues amounted to approximately $14.6 million for the three months ended June 30, 2021, and are recordedthat occurred in the Company’s unaudited interim condensed consolidated statementsecond quarter of operations as cost of revenue – fuel delivered to customers for the three months ended June 30, 2021. The Company also purchased certain fuel tanks from the fuel provider during the three months ended June 30, 2021.
Cost of revenue from fuel delivered to customers for the six months ended June 30, 20212022 increased 179.8%29.5%, or $40.1$18.4 million, to $62.5$80.9 million from $22.3$62.5 million for the six months ended June 30, 2020.2021. The increase was primarily due to higher volume of hydrogen delivered to customer sites as a result of an increase in the number of hydrogen installations completed under GenKey agreements, inefficiencies in fueling systems and higher fuel costs. The increase in fuelAs a result of these inefficiencies and higher costs, was primarily due to vendor transition and force majeure events primarily related to hydrogen plant shutdowns that impacted the cost of fuel. Grossgross loss increased to (180.8)%(189.9%) during the six months ended June 30, 2021,2022, compared to (51.9)%
42
(180.8%) during the six months ended June 30, 2020. The increased gross loss is primarily due2021. We expect higher hydrogen molecule costs to the vendor transition and force majeure issues mentioned above. The cost associated with the vendor transition amounted to approximately $16.0 million for the six months ended June 30, 2021, which are recorded in the Company’s unaudited interim condensed consolidated statement of operations as cost of revenue – fuel delivered to customers for the six months ended June 30, 2021. The Company also purchased certain fuel tanks from the fuel provider during the six months ended June 30, 2021.continue at least through 2022.
Expenses
Research and development expense. Research and development (“R&D”) expense includes: materials to build development and prototype units, cash and non-cash stock-based compensation and benefits for the engineering and related staff, expenses for contract engineers, fees paid to consultants for services provided, materials and supplies consumed, facility related costs such as computer and network services, and other general overhead costs associated with our research and development activities.
Research and development expense for the three months ended June 30, 20212022 increased $6.4$12.3 million, or 130.8%109.5%, to $11.2$23.6 million, from $4.9$11.2 million for the three months ended June 30, 2020.2021. The overall growth in R&D investment is commensurate with the Company’s future expansion into new markets, new product lines, acquisitions and varied vertical integrations. The average number of R&D employees was 119 at June 30, 2020 compared to 216 at June 30, 2021.
Research and development expense for the six months ended June 30, 20212022 increased $11.3$23.0 million, or 117.6%109.7%, to $21.0$44.0 million, from $9.6$21.0 million for the six months ended June 30, 2020.2021. The overall growth in R&D investment is commensurate with the Company’s future expansion into new markets, new product lines, acquisitions and varied vertical integrations. The average number of R&D employees was 117 at June 30, 2020 compared to 191 at June 30, 2021.
39
Selling, general and administrative expenses. Selling, general and administrative expenses includes cash and non-cash stock-based compensation, benefits, amortization of intangible assets and related costs in support of our general corporate functions, including general management, finance and accounting, human resources, selling and marketing, information technology and legal services.
Selling, general and administrative expenses for the three months ended June 30, 2021,2022, increased $17.0$57.3 million, or 78.6%148.2%, to $38.7$96.0 million from $21.6$38.7 million for the three months ended June 30, 2020.2021. This increase was primarily related to increasesincreased headcount, which resulted in increased salaries and stock-based compensation, due to increased headcount andas well as branding expenses, in addition to costs associated with the restatement of our previous years’ financial statements.expenses.
Selling, general and administrative expenses for the six months ended June 30, 2021,2022, increased $31.5$112.6 million, or 96.1%175.3%, to $64.2$176.8 million from $32.8$64.2 million for the six months ended June 30, 2020.2021. This increase was primarily related to increasesincreased headcount, which resulted in increased salaries and stock-based compensation, due to increased headcount andas well as branding expenses, in addition to costs associated with the restatement of our previous years’ financial statements.expenses.
Contingent Consideration.consideration. The fair value of the contingent consideration related to the Giner ELX, Inc. and, United Hydrogen Group Inc.Inc, Frames, Applied Cryo and Joule acquisitions was remeasured as of June 30, 2021,2022, which resulted in a $560 thousand$5.1 million benefit for the three months ended June 30, 20212022 and a $230 thousand charge$2.6 million benefit for the six months ended June 30, 2021,2022, both of which are reflected in the unaudited interim condensed consolidated statement of operations for the three and six months ended June 30, 2021,2022, respectively.
Interest income. Interest income primarily consists of income generated by our investment holdings, restricted cash escrow accounts, and money market accounts. Interest income for the three and six months ended June 30, 2022 increased $2.4 million and $4.4 million, respectively, as compared to the three and six months ended June 30, 2021. The increase is primarily related to the increase in the investment portfolio during 2022.
Interest expense. Interest expense consists of interest expense related to our long-term debt, convertible senior notes, obligations under finance leases and our finance obligations. Interest decreased $3.1 million, or 23.2%, from $13.4 millionexpense for the three months ended June 30, 20202022 decreased $0.5 million compared to $10.3 million for the three months ended June 30, 2021.2021, primarily related to a decrease in long-term debt and an increase in capitalized interest, offset by an increase in finance obligations. Interest decreased $2.6 million, or 10.4%, from $25.2 millionexpense for the six months ended June 30, 20202022 decreased $4.2 million compared to $22.5 million for the six months ended June 30, 2021. Since June 2020, the Company borrowed approximately $50.0 million of additional long-term debt at a 9.5% interest rate, and entered into additional sale/leaseback finance obligation arrangements. This was offset by the exchange and conversion during 2020 of both the 7.5% Convertible Senior Notes and 5.5% Convertible Senior Notes, and the adoption of ASU 2020-06 which reduced the noncash interest expense on convertible notes.
Other expense, net. Other expense, net consists of other expenses related to our foreign currency exchange losses, offset by interest and other income consisting primarily of interest earned on our cash and cash equivalents, restricted cash and available-for-sale securities. This decreased $24 thousand for the three months ended June 30, 2021 in comparison to the three months ended June 30, 2020. This increased $117 thousand for the six months ended June 30, 2021, primarily related to a decrease in comparisonlong-term debt and an increase in capitalized interest, offset by an increase in finance obligations.
43
Realized loss on investments, net. Realized loss on investments, net consists of the sales related to available-for-sale debt securities. For the three and six months ended June 30, 2020.
Net2022, the Company had a loss of $0.5 million and $1.3 million, respectively, of net realized gain (loss)loss on investments. Net realized gain (loss) on investments consists of the sales and maturities related to available-for-sale debt securities. This increased $18 thousand for bothFor the three and six months ended June 30, 2021, in comparison to the three and six months ended June 30, 2020.Company had a gain of $18 thousand, of net realized loss (gain) on investments.
Change in fair value of equity securities. Change in fair value of equity securities consists of the changes in fair value for equity securities from the purchase date to the end of the period.securities. This increased $323 thousand$13.8 million and $19.0 million for the three and six months ended June 30, 20212022 in comparison to the three and six months ended June 30, 2020.2021.
Income Tax
Loss on equity method investments. Loss on equity method investments consists of our interest in HyVia, which is our 50/50 joint venture with Renault, AccionaPlug S.L., which is our 50/50 joint venture with Acciona, and SK Plug Hyverse Co., Ltd., which is our 49/51 joint venture with SK E&S. For the three and six months ended June 30, 2022, the Company recorded a loss of $2.2 million and $6.0 million on equity method investments. These losses are driven from the start-up activities for commercial and production operations. The Company did not recordhave any income tax expense or benefitequity method investments for the three or six months ended June 30, 2021.
Income Taxes
The Company recognized anrecorded $0.4 million and $0 of income tax benefitexpense for the three months ended June 30, 2022 and 2021, respectively. The Company recorded $9 thousand and $0 of income tax expense for the six months ended June 30, 2020 of $17.4 million. Income tax benefit for the three2022 and six months ended June 30, 2020 included $12.2 million resulting from the intraperiod tax allocation rules under ASC Topic 740-20, Intraperiod Tax Allocation, under which the Company recognized an income tax benefit resulting from a source of future taxable income attributable to the net credit to additional paid-in capital related to the issuance of the 3.75% Convertible Senior Notes, offset by the partial extinguishment of the 5.5% Convertible Senior Notes. In addition, the Company recorded $5.2 million of income tax benefit for the three and six months ended June 30,
40
2020 related to the recognition of net deferred tax liabilities in connection with the Giner ELX, Inc. acquisition, which resulted in a corresponding reduction in our deferred tax asset valuation allowance.2021, respectively. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its domestic net deferred tax assets, which remain fully reserved.
The domestic net deferred tax asset generated from the Company’s net operating loss has been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carry forward will not be realized. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.
Liquidity and Capital Resources
Liquidity
As of June 30, 20212022 and December 31, 2020,2021, the Company had $3.2$2.3 billion and $1.3$2.5 billion, respectively of cash and cash equivalents and $429.4$705.7 million and $321.9$650.9 million of restricted cash, respectively. In January and February 2021, the Company issued and sold in a registered equity offering an aggregate of 32.2 million shares of its common stock at a purchase price of $65.00 per share for net proceeds of approximately $1.8$2.0 billion. Furthermore, inIn February 2021, the Company completed the previously announced sale of its common stock in connection with a strategic partnership with SK Holdings to accelerate the use of hydrogen as an alternative energy source in Asian markets. The Company sold 54,996,188 shares of its common stock to a subsidiary of SK Holdings at a purchase price of $29.2893 per share, or an aggregate purchase price of approximately $1.6 billion.
The Company has continued to experience negative cash flows from operations and net losses. The Company incurred net losses attributable to common stockholders of $160.4$329.8 million and $46.9$160.4 million for the six months ended June 30, 20212022 and 2020,2021, respectively, and had an accumulated deficit of $2.1$2.7 billion at June 30, 2021.2022.
The Company’s significant obligations consisted ofnet cash used in operating activities for the following as ofsix months ended June 30, 2021:
2022 and 2021 was $405.1 million and $246.6 million, respectively. The Company’s working capital was $4.7$3.5 billion at June 30, 2021,2022, which included unrestricted cash and cash equivalents of $3.2$2.3 billion. The Company plans to invest a portion of its available cash to expand its current production and manufacturing capacity, construction of hydrogen plants and to fund strategic acquisitions and partnerships and capital projects. Future use of the Company’s funds is discretionary and the Company believes that its working capital and cash position will be sufficient to fund its operations for at least one year after the date the financial statements are issued.
The net cash provided by (used in) investing activities for the six months ended June 30, 2022 and 2021 was $265.4 million and ($1.4) billion, respectively. This included purchases of property, plant and equipment and outflows
4144
associated with materials, labor, and overhead necessary to construct new leased property. Cash outflows related to equipment that we lease directly to customers are included in net cash used in investing activities.
The net cash (used in) provided by financing activities for the six months ended June 30, 2022 and 2021 was ($30.7) million and $3.6 billion, respectively. The change was primarily driven by proceeds from public and private offerings, net of transaction costs that occurred in 2021.
The Company’s significant obligations consisted of the following as of June 30, 2022:
(i) | Operating and finance leases totaling $230.5 million and $39.3 million, respectively, of which $37.2 million and $6.3 million, respectively, are due within the next 12 months. These leases are primarily related to sale/leaseback agreements entered into with various financial institutions to facilitate the Company’s commercial transactions with key customers. |
(ii) | Finance obligations totaling $266.4 million, of which approximately $46.8 million is due within the next 12 months. Finance obligations consist primarily of debt associated with the sale of future revenues and failed sale/leaseback transactions. |
(iii) | Long-term debt, primarily related to the Company’s Loan Agreement with Generate Capital totaling $92.6 million, of which $1.0 million is classified as short term on our consolidated balance sheets. |
(iv) | Convertible senior notes totaling $193.3 million at June 30, 2022. |
Public and Private Offerings of Equity and Debt
Common Stock Issuances
In February 2021, the Company completed the previously announced sale of its common stock in connection with a strategic partnership with SK Holdings to accelerate the use of hydrogen as an alternative energy source in Asian markets. The Company sold 54,966,188 shares of its common stock to a subsidiary of SK Holdings at a purchase price of $29.2893 per share, or an aggregate purchase price of approximately $1.6 billion.
In January and February 2021, the Company issued and sold in a registered equity offering an aggregate of 32.2 million shares of its common stock at a purchase price of $65.00 per share for net proceeds of approximately $1.8$2.0 billion.
In November 2020, the Company issued and sold in a registered equitydirect offering an aggregate of 43,700,000 shares of its common stock at a purchase price of $22.25 per share for net proceeds of approximately $927.3 million.
In August 2020, the Company issued and sold in a registered equitydirect offering an aggregate of 35,276,250 shares of its common stock at a purchase price of $10.25 per share for net proceeds of approximately $344.4 million.
On April 13, 2020, the Company entered into the At Market Issuance Sales Agreement with B. Riley Financial (“B. Riley”), as sales agent, pursuant to which the Company may offer and sell, from time to time through B. Riley, shares of Company common stock having an aggregate offering price of up to $75.0 million. As of the date of this filing, the Company has not issued any shares of common stock pursuant to the At Market Issuance Sales Agreement.
Convertible Senior Notes
In May 2020, the Company issued $212.5 million in aggregate principal amount of 3.75% Convertible Senior Notes. The total net proceeds from this offering, after deducting costs of the issuance, were $205.1 million. The Company used $90.2 million of the net proceeds from the offering of the 3.75% Convertible Senior Notes to repurchase $66.3 million of the $100 million in aggregate principal amount of the 5.5% Convertible Senior Notes. In addition, the Company used approximately $16.3 million of the net proceeds from the offering of the 3.75% Convertible Senior Notes to enter into privately negotiated capped called transactions. In the fourth quarter of 2020, $33.5 million of the remaining 5.5% Convertible Senior Notes were converted into 14.6 million shares of common stock, resulting in a gain of approximately $4.5 million which was recorded on the consolidated statement of operations on the gain (loss) on extinguishment of debt line. As of December 31, 2020, approximately $160 thousand$0.2 million aggregate principal amount of the 5.5% Convertible Senior Notes remained outstanding, all of which were converted to common stock in January 2021.
In September 2019, the Company issued $40.0 million in aggregate principal amount of 7.5% Convertible Senior Note. The Company’s total obligation, net of interest accretion, due to the holder was $48.0 million. The total net proceeds
45
from this offering, after deducting costs of the issuance, were $39.1 million. On July 1, 2020, the note automatically converted fully into 16.0 million shares of common stock.
Secured Debt
In March 2019, the Company entered into a loan and security agreement, as amended (the “Loan Agreement”), with Generate Lending, LLC (“Generate Capital”), providing for a secured term loan facility in the amount of $100 million (the “Term Loan Facility”).
During the year ended December 31, 2020, the Company, under another series of amendments to the Loan Agreement, borrowed an incremental $100.0 million. As part of the amendment to the Loan Agreement, the Company’s interest rate on the secured term loan facility was reduced to 9.50% from 12.00% per annum, and the maturity date was extended to October 31, 2025 from October 6, 2022. On June 30, 2021,2022, the outstanding balance under the Term Loan Facility was $150.8$83.3 million. In addition toThe carrying value of the Generate CapitalTerm Loan on June 30, 2021, there was approximately $10.0 million of debt related to the United Hydrogen Group acquisition.Facility approximates fair value.
42
The Loan Agreement includes covenants, limitations, and events of default customary for similar facilities. Interest and a portion of the principal amount is payable on a quarterly basis. Principal payments are funded in part by releases of restricted cash, as described in Note 19, “Commitments and Contingencies.” Based on the amortization schedule as of June 30, 2021,2022, the aforementioned loan balance under the Term Loan Facility will be fully paid by October 31, 2025. TheAt June 30, 2022, the Company iswas in compliance with or has obtained waivers for, all debt covenants.covenants under the Term Loan Facility.
The Term Loan Facility is secured by substantially all of the Company’s and the guarantor subsidiaries’ assets, including, among other assets, all intellectual property, all securities in domestic subsidiaries and 65% of the securities in foreign subsidiaries, subject to certain exceptions and exclusions.
The Loan Agreement provides that if there is an event of default due to the Company’s insolvency or if the Company fails to perform in any material respect the servicing requirements for fuel cell systems under certain customer agreements, which failure would entitle the customer to terminate such customer agreement, replace the Company or withhold the payment of any material amount to the Company under such customer agreement, then Generate Capital has the right to cause Proton Services Inc., a wholly owned subsidiary of the Company, to replace the Company in performing the maintenance services under such customer agreement.
As of June 30, 2021, the Term Loan Facility requires the principal balance as of each of the following dates not to exceed the following (in thousands):
| | |
December 31, 2021 | $ | 127,317 |
December 31, 2022 | | 93,321 |
December 31, 2023 | | 62,920 |
December 31, 2024 | | 33,692 |
December 31, 2025 | | — |
Several key indicators of liquidity are summarized in the following table (in thousands):
| | | | | | |
|
| Six months |
| Year | ||
| | ended or at | | ended or at | ||
| | June 30, 2021 | | December 31, 2020 | ||
Cash and cash equivalents at end of period | | $ | 3,160,170 | | $ | 1,312,404 |
Restricted cash at end of period | |
| 429,393 | |
| 321,880 |
Working capital at end of period | |
| 4,715,333 | |
| 1,380,830 |
Net loss attributable to common stockholders | |
| (160,380) | |
| (596,181) |
Net cash used in operating activities | |
| (246,635) | |
| (155,476) |
Net cash used in investing activities | |
| (1,405,217) | |
| (95,334) |
Net cash provided by financing activities | |
| 3,607,294 | |
| 1,515,529 |
3.75% Convertible Senior Notes
On May 18, 2020, the Company issued $200.0 million in aggregate principal amount of 3.75% Convertible Senior Notes due June 1, 2025, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.Act of 1933, as amended (the “Securities Act”). On May 29, 2020, the Company issued an additional $12.5 million in aggregate principal amount of 3.75% Convertible Senior Notes.
At issuance in May 2020, the total net proceeds from the 3.75% Convertible Senior Notes were as follows:
| | |
| Amount | |
| (in thousands) | |
Principal amount | $ | 212,463 |
Less initial purchasers' discount | | (6,374) |
43
Less cost of related capped calls | | (16,253) |
Less other issuance costs | | (617) |
Net proceeds | $ | 189,219 |
The 3.75% Convertible Senior Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020. The notes will mature on June 1, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms.
The 3.75% Convertible Senior Notes are senior, unsecured obligations of the Company and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the notes, equal in right of payment to any of the Company’s existing and future liabilities that are not so subordinated, including the Company’s $100 million in aggregate principal amount of the 5.5% Convertible Senior Notes, effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the collateral securing such indebtedness, and structurally subordinated to all indebtedness and other liabilities, including trade payables, of its current or future subsidiaries.
Holders of the 3.75% Convertible Senior Notes may convert their notes at their option at any time prior to the close of the business day immediately preceding December 1, 2024 in the following circumstances:
On or after December 1, 2024, the holders of the 3.75% Convertible Senior Notes may convert all or any portion of their notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.
The initial conversion rate for the 3.75% Convertible Senior Notes is 198.6196 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $5.03 per share of the Company’s common stock, subject to adjustment upon the occurrence of specified events. Upon conversion, the Company will pay or deliver, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. During the three months ended June 30, 2021, certain conditions allowing holders of the 3.75% Convertible Senior Notes to convert were met. The 3.75% Convertible Senior Notes are therefore convertible during the calendar quarter ending September 30, 2021 at the conversion rate discussed above. During theand six months ended June 30, 2021, $15.2 million of the 3.75% Convertible Senior Notes2022, there were converted and the Company issued 3.0 million shares of common stock in conjunction with these conversions.
In addition, following certain corporate events or following issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event or convert its notes called for redemption during the related redemption period in certain circumstances.
44
The 3.75% Convertible Senior Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after June 5, 2023 and before the 41st scheduled trading day immediately before the maturity date, at a cash redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the three trading days immediately preceding the date the Company sends the related redemption notice, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company sends such redemption notice.
If the Company undergoes a “fundamental change” (as defined in the Indenture), holders may require the Company to repurchase their notes for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, to, but excluding, the fundamental change repurchase date.
The Company accounts for the 3.75% Convertible Senior Notes as a liability. We incurred transaction costs related to the issuance of the 3.75% Convertible Senior Notes of approximately $7.0 million, consisting of initial purchasers’ discount of approximately $6.4 million and other issuance costs of $0.6 million which were recorded as debt issuance cost (presented as contra debt in the unaudited interim condensed consolidated balance sheets) and are being amortized to interest expense over the termno conversions of the 3.75% Convertible Senior Notes.
The 3.75% Convertible Senior Notes consisted of the following (in thousands):
| | |
| June 30, | |
| 2021 | |
Principal amounts: | | |
Principal | $ | 197,278 |
Unamortized debt issuance costs (1) | | (5,267) |
Net carrying amount | $ | 192,011 |
| | | | |
| | | June 30, | |
| | | 2022 | |
Principal amounts: | | | | |
Principal | | | $ | 197,278 |
Unamortized debt issuance costs (1) | | | | (4,009) |
Net carrying amount | | | $ | 193,269 |
1) | Included in the unaudited interim condensed consolidated balance sheets within the 3.75% Convertible Senior Notes, net and amortized over the remaining life of the notes using the effective interest rate method. |
The following table summarizes the total interest expense, the amortization of debt issuance costs and the effective interest rate related to the 3.75% Convertible Senior Notes (in thousands, except for effective interest rate):
| | | | | | | | | |
| June 30, | | June 30, | | | June 30, | | ||
| 2021 |
| 2022 |
| | 2021 | | ||
Interest expense | $ | 1,850 | | $ | 1,849 | | $ | 1,850 | |
Amortization of debt issuance costs | | 306 | | | 320 | | | 306 | |
Total | | 2,156 | | | 2,169 | | | 2,156 | |
| | | | | | | | | |
Effective interest rate | | 4.50% | | | 4.5% | | | 4.5% | |
Based on the closing price of the Company’s common stock of $34.19$16.57 on June 30, 2021,2022, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at June 30, 20212022 was approximately $1.3 billion.$700 million. The fair value estimation was primarily based on an active stock exchange trade on June 24, 202114, 2022 of the 3.75% Convertible Senior Convertible Note.Notes. See Note 15, “Fair Value Measurements”Measurements,” for a description of the fair value hierarchy.
Capped Call
4546
Capped Call
In conjunction with the pricing of the 3.75% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “3.75% Notes Capped Call”) with certain counterparties at a price of $16.2 million. The 3.75% Notes Capped Call covers, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that underlie the initial 3.75% Convertible Senior Notes and is generally expected to reduce potential dilution to the Company’s common stock upon any conversion of the 3.75% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 3.75% Notes Capped Call is initially $6.7560 per share, which represents a premium of approximately 60% over the last then-reported sale price of the Company’s common stock of $4.11 per share on the date of the transaction and is subject to certain adjustments under the terms of the 3.75% Notes Capped Call. The 3.75% Notes Capped Call becomes exercisable if the conversion option is exercised.
The net cost incurred in connection with the 3.75% Notes Capped Call waswere recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets.
5.5% Convertible Senior
The book value of the 3.75% Notes Capped Call is not remeasured.
Common Stock Forward
In March 2018, the Company issued $100.0 million in aggregate principal amount of the 5.5% Convertible Senior Notes due on March 15, 2023, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
In May 2020, the Company used a portion of the net proceeds from the issuance of the 3.75% Convertible Senior Notes to finance the cash portion of the partial repurchase of the 5.5% Convertible Senior Notes,Act, which consisted of a repurchase of approximately $66.3 million in aggregate principal amount of the 5.5% Convertible Senior Notes in privately-negotiated transactions for aggregate consideration of $128.9 million, consisting of approximately $90.2 million in cash and approximately 9.4 million shares of the Company’s common stock. The partial repurchase of the 5.5% Convertible Senior Notes resulted in a $13.2 million gain on early debt extinguishment. In the fourth quarter of 2020, $33.5 million of the remaining 5.5% Convertible Senior Noteshave been fully converted into 14.6 million shares of common stock which resulted in a gain of approximately $4.5 million and was recorded on the unaudited interim condensed consolidated statement of operations on the gain (loss) on extinguishment of debt line.
On January 7, 2021, the remaining aggregate principal of $160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes were converted into 69,808 shares of common stock. Interest expense and amortization for the period were immaterial.
Capped Call
In conjunction with the pricing of the 5.5% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “5.5% Notes Capped Call”) with certain counterparties at a price of $16.0 million to reduce the potential dilution to the Company’s common stock upon any conversion of the 5.5% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 5.5% Convertible Senior Notes, as the case may be. The net cost incurred in connection with the 5.5% Notes Capped Call has been recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets.
In conjunction with the pricing of the partial repurchase of the 5.5% Convertible Senior Notes, the Company terminated 100% of the 5.5% Notes Capped Call on June 5, 2020. As a result of the termination, the Company received $24.2 million, which was recorded in additional paid-in capital in the unaudited interim condensed consolidated balance sheets.
Common Stock Forward
In connection with the issuance of the 5.5% Convertible Senior Notes, the Company also entered into a forward stock purchase transaction (“the Common(the “Common Stock Forward”), pursuant to which the Company agreed to purchase 14,397,906 shares of its common stock for settlement on or about March 15, 2023. In connection with the issuance of the
46
3.75% Convertible Senior Notes and the partial repurchase of the 5.5% Convertible Senior Notes,On May 18, 2020, the Company amended and extended the maturity of the Common Stock Forward to June 1, 2025. The number of shares of common stock that the Company will ultimately repurchase under the Common Stock Forward is subject to customary anti-dilution adjustments. The Common Stock Forward is subject to early settlement or settlement with alternative consideration in the event of certain corporate transactions.
The net cost incurred in connection with the Common Stock Forward of $27.5 million was recorded as an increase in treasury stock in the unaudited interim condensed consolidated balance sheets. The related shares were accounted for as a repurchase of common stock.
The book value of the 5.5% Notes Capped Call and Common Stock Forward areis not remeasured.
There were no shares of common stock settled in connection with the Common Stock Forward during the three and six months ended June 30, 2022. During the fourth quarter of 2020,three and six months ended June 30, 2021, the Common Stock Forward was partially settled and as a result, the Company received 4.42.2 million shares of its common stock. During the first quarter of 2021, 5.9and 8.1 million shares settled and were received by the Company. During the second quarter of 2021, an additional 2.2 million shares were settled and received by the Company.Company, respectively.
Amazon Transaction Agreement
On April 4, 2017, the Company and Amazon entered into a Transaction Agreement (the “Amazon Transaction Agreement”), pursuant to which the Company agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon, a warrant (the “Amazon Warrant”) to acquire up to 55,286,696 shares of the Company’s common stock (the “Amazon Warrant Shares”), subject to certain vesting events described below. The Company and Amazon entered into the Amazon Transaction Agreement in connection with existing commercial agreements between the Company and Amazon with respect to the deployment of the Company’s GenKey fuel cell technology at Amazon distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. The vesting of the Amazon Warrant Shares was conditioned upon payments made by Amazon or its affiliates (directly or indirectly through third parties) pursuant to the existing commercial agreements.
Under the termsThe warrant had been exercised with respect to 17,461,994 shares of the original Amazon Warrant, the first trancheCompany’s common stock as of the 5,819,652 Amazon Warrant Shares vested upon execution of the Amazon Warrant,June 30, 2022 and the remaining Amazon Warrant Shares vest based on Amazon’s payment of up to $600.0 million to the Company in connection with Amazon’s purchase of goods and services from the Company. The $6.7 million fair value of the first tranche of the Amazon Warrant Shares, was recognized as selling, general and administrative expense upon execution of the Amazon Warrant.December 31, 2021.
Provision for the second and third tranches of Amazon Warrant Shares is recorded as a reduction of revenue, because they represent consideration payable to a customer.
The fair value of the second tranche of Amazon Warrant Shares was measured at January 1, 2019, upon adoption of ASU 2019-08. The second tranche of 29,098,260 Amazon Warrant Shares vested in four equal installments, as Amazon or its affiliates, directly or indirectly through third parties, made an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $200.0 million in the aggregate. The last installment of the second tranche vested on November 2, 2020. Revenue reductions of $9.0 million, $4.1 million and $9.8 million associated with the second tranche of Amazon Warrant Shares were recorded in 2020, 2019 and 2018, respectively, under the terms of the original Amazon Warrant.
Under the terms of the original Amazon Warrant, the third tranche of 20,368,784 Amazon Warrant Shares vests in eight equal installments, as Amazon or its affiliates, directly or indirectly through third parties, made an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The measurement date for the third tranche of Amazon Warrant Shares was November 2, 2020, when their exercise price was determined, as discussed further below. The fair value of the third tranche of Amazon Warrant Shares was determined to be $10.57 each. During 2020, revenue reductions of $24.1 million associated with the third tranche Amazon Warrant Shares were recorded under the terms of the original Amazon Warrant, prior to the December 31, 2020 waiver described below.
47
On December 31, 2020, the Company waived the remaining vesting conditions under the Amazon Warrant, which resulted in the immediate vesting of all the third tranche of the Amazon Warrant Shares and recognition of an additional $399.7 million reduction to revenue.
The $399.7 million reduction to revenue resulting from the December 31, 2020 waiver was determined based upon a probability assessment of whether the underlying shares would have vested under the terms of the original Amazon Warrant. Based upon the Company’s projections of probable future cash collections from Amazon (i.e., a Type I share based payment modification), a reduction of revenue associated with 5,354,905 Amazon Warrant Shares was recognized at their previously measured November 2, 2020 fair value of $10.57 per warrant. A reduction of revenue associated with the remaining 12,730,490 Amazon Warrant Shares was recognized at their December 31, 2020 fair value of $26.95 each, based upon the Company’s assessment that associated future cash collections from Amazon were not deemed probable (i.e., a Type III share based payment modification).
The $399.7 million reduction to revenue was recognized during the year ended December 31, 2020 because the Company concluded such amount was not recoverable from the margins expected from future purchases by Amazon under the Amazon Warrant, and no exclusivity or other rights were conferred to the Company in connection with the December 31, 2020 waiver. Additionally, for the year ended December 31, 2020, the Company recorded a reduction to the provision for warrants of $12.8 million in connection with the release of the service loss accrual.
At December 31, 2020,2021, all 55,286,696 of the Amazon Warrant Shares had vested, however forvested. For service contracts entered into prior to December 31, 2020, the warrant charge associated with that revenue was capitalized and is subsequently amortized over the life of the service contract. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three months ended June 30, 2022 and 2021 was $0.1 million and 2020 was $105 thousand and $3.4$0.1 million, respectively. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the six months ended June 30, 2022 and 2021 was $0.2 million and 2020 was $209 thousand and $4.7$0.2 million, respectively. During the three months ended March 31, 2021 and June 30, 2021, the Amazon Warrant was exercised with respect to 9,214,449 shares of common stock and 4,745,905 shares of common stock, respectively. In July 2021, the Amazon Warrant was exercised with respect to an additional 3,501,640 shares of common stock.
The exercise price for the first and second tranches of Amazon Warrant Shares was $1.1893 per share. The exercise price of the third tranche of Amazon Warrant Shares was $13.81 per share, which was determined pursuant to the terms of the Amazon Warrant as an amount equal to ninety percent (90%) of the 30-day volume weighted average share price of the Company’s common stock as of November 2, 2020, the final vesting date of the second tranche of Amazon Warrant Shares. The Amazon Warrant was exercisable through April 4, 2027. The Amazon Warrant provides for net share settlement that, if elected by the holder, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Amazon Warrant provides for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. The Amazon Warrant is classified as an equity instrument.Walmart Transaction Agreement
Fair value of the Amazon Warrant at December 31, 2020 and November 2, 2020 was based on the Black Scholes Option Pricing Model, which is based, in part, upon level 3 unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions.
The Company used the following assumptions for its Amazon Warrant:
| | | | |
| | | | |
| | December 31, 2020 | | November 2, 2020 |
Risk-free interest rate | | 0.58% | | 0.58% |
Volatility | | 75.00% | | 75.00% |
Expected average term | | 6.26 | | 6.42 |
Exercise price | | $13.81 | | $13.81 |
Stock price | | $33.91 | | $15.47 |
48
Walmart Transaction Agreement
On July 20, 2017, the Company and Walmart entered into a Transaction Agreement (the “Walmart Transaction Agreement”), pursuant to which the Company agreed to issue to Walmart a warrant (the “Walmart Warrant”) to acquire up to 55,286,696 shares of the Company’s common stock, subject to certain vesting events (the “Walmart Warrant Shares”). The Company and Walmart entered into the Walmart Transaction Agreement in connection with existing commercial agreements between the Company and Walmart with respect to the deployment of the Company’s GenKey fuel cell technology across various Walmart distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. The vesting of the warrant shares was conditioned upon payments made by Walmart or its affiliates (directly or indirectly through third parties) pursuant to transactions entered into after January 1, 2017 under existing commercial agreements.
The majoritywarrant had been exercised with respect to 13,094,217 shares of the Walmart Warrant Shares will vest based on Walmart’s payment of up to $600.0 million to the Company in connection with Walmart’s purchase of goods and services from the Company. The first tranche of 5,819,652 Walmart Warrant Shares vested upon the execution of the Walmart Warrant and was fully exercised as of December 31, 2020. Accordingly, $10.9 million, the fair value of the first tranche of Walmart Warrant Shares, was recorded as a provision for common stock warrants and presented as a reduction to revenue on the consolidated statements of operations during 2017. All future provision for common stock warrants is measured based on their grant-date fair value and recorded as a charge against revenue. The second tranche of 29,098,260 Walmart Warrant Shares vests in four installments of 7,274,565 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $200.0 million in the aggregate. The exercise price for the first and second tranches of Walmart Warrant Shares is $2.1231 per share. After Walmart has made payments to the Company totaling $200.0 million, the third tranche of 20,368,784 Walmart Warrant Shares will vest in eight installments of 2,546,098 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The exercise price of the third tranche of Walmart Warrant Shares will be an amount per share equal to ninety percent (90%) of the 30-day volume weighted average share price of theCompany’s common stock as of the final vesting date of the second tranche of Walmart Warrant Shares, provided that, with limited exceptions, the exercise price for the third tranche will be no lower than $1.1893. The Walmart Warrant is exercisable through July 20, 2027.
The Walmart Warrant provides for net share settlement that, if elected by the holder, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Walmart Warrant provides for certain adjustments that may be made to the exercise priceJune 30, 2022 and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. The Walmart Warrant is classified as an equity instrument.December 31, 2021.
At both June 30, 20212022 and December 31, 2020, 13,094,2172021, 20,368,782 of the Walmart Warrant Shares had vested. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the three months ended June 30, 2022 and 2021 was $2.0 million and 2020 was $1.6 million, and $1.0 million, respectively. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the six months ended June 30, 2022 and 2021 and 2020 was $3.2$3.7 million and $1.9$3.2 million, respectively. During the three and six months ended March 31,June 30, 2022 and 2021, respectively, the Walmart Warrant had beenwas exercised with respect to 0 and 7,274,565 shares of common stock. There were no exercises during the three months ended June 30, 2021.
Operating and Finance Lease Liabilities
As of June 30, 2021,2022, the Company had operating leases, as lessee, primarily associated with sale/leaseback transactions that are partially secured by restricted cash, security deposits and pledged escrows (see also Note 1, “Nature of Operations”) as summarized below. These leases expire over the next one to nine years. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease.
Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote. At the end of the lease term, the leased assets may be returned to the lessor by the Company, the Company may negotiate with the lessor to purchase the assets at fair market value, or the Company may negotiate with
49
the lessor to renew the lease at market rental rates. No residual value guarantees are contained in the leases. No financial covenants are contained within the lease; however, the lease however there arecontains customary operational covenants such as assurancethe requirement that the Company properly maintainsmaintain the leased assets and carriescarry appropriate insurance, etc.insurance. The leases include credit support in the form of either cash, collateral or letters of credit. See Note 19, “Commitments and Contingencies” for a description of cash held as security associated with the leases.
The Company has finance leases associated with its property and equipment in Latham, New York and at fueling customer locations. The fair value of this finance obligation approximated the carrying value as of June 30, 2021.2022.
Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of June 30, 2021 were as follows (in thousands):
| | | | | | | | | |
| | | | | Finance | | Total | ||
| | | Operating Lease | | Lease | | Lease | ||
| | | Liability | | Liability | | Liabilities | ||
Remainder of 2021 | | $ | 17,298 | | $ | 1,826 | | $ | 19,124 |
2022 | | | 34,579 | |
| 3,731 | | | 38,310 |
2023 | | | 34,636 | |
| 3,708 | | | 38,344 |
2024 | | | 34,636 | |
| 3,715 | | | 38,351 |
2025 and thereafter | | | 73,276 | | | 4,921 | | | 78,197 |
Total future minimum payments | | | 194,425 | |
| 17,901 | | | 212,326 |
Less imputed interest | | | (52,307) | | | (2,793) | | | (55,100) |
Total | | $ | 142,118 | | $ | 15,108 | | $ | 157,226 |
Rental expense for all operating leases was $8.2 million and $7.8 million for the three months ended June 30, 2021 and 2020, respectively. Rental expense for all operating leases was $16.3 million and $12.5 million for the six months ended June 30, 2021 and 2020, respectively.
The gross profit on sale/leaseback transactions for all operating leases was $19.5 million and $14.4 million for the three months ended June 30, 2021 and 2020, respectively. The gross profit on sale/leaseback transactions for all operating leases was $35.4 million and $19.7 million for the six months ended June 30, 2021 and 2020, respectively.
Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $24.0 million and $2.9 million for the three months ended June 30, 2021 and 2020, respectively. Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $35.9 million and $8.1 million for the six months ended June 30, 2021 and 2020, respectively.
At June 30, 2021 and December 31, 2020, the right of use assets associated with operating leases was $172.3 million and $136.9 million, respectively. The accumulated depreciation for these right of use assets was $26.5 million and $19.9 million at June 30, 2021 and December 31, 2020, respectively.
At June 30, 2021 and December 31, 2020, the right of use assets associated with finance leases was $17.3 million and $5.7 million, respectively. The accumulated depreciation for these right of use assets was $380 thousand and $102 thousand at June 30, 2021 and December 31, 2020, respectively.
At June 30, 2021 and December 31, 2020, security deposits associated with sale/leaseback transactions were $3.1 million and $5.8 million, respectively, and were included in other assets in the consolidated balance sheets.
Other information related to the operating leases are presented in the following table:
| | | | | |
| | Six months ended | | | Six months ended |
| | June 30, 2021 | | | June 30, 2020 |
Cash payments (in thousands) | $ | 16,081 | | $ | 9,674 |
50
Weighted average remaining lease term (years) | | 5.82 | | | 4.34 |
Weighted average discount rate | | 11.4% | | | 12.1% |
Right of use assets obtained in exchange for new finance lease liabilities were $6.5 million and $0.7 million for the three months ended June 30, 2021 and 2020, respectively. Right of use assets obtained in exchange for new finance lease liabilities were $12.1 million and $0.7 million for the six months ended June 30, 2021 and 2020, respectively.
Other information related to the finance leases are presented in the following table:
| | | | | | |
| | Six months ended | | | Six months ended | |
| | June 30, 2021 | | | June 30, 2020 | |
Cash payments (in thousands) | $ | 1,166 | | $ | 132 | |
Weighted average remaining lease term (years) | | 4.86 | | | 6.74 | |
Weighted average discount rate | | 6.9% | | | 9.6% | |
Finance Obligation
The Company has sold future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at June 30, 20212022 was $176.3$251.7 million, $27.3$43.7 million and $149.0$208.0 million of which was classified as short-term and long-term, respectively, on the
48
accompanying unaudited interim condensed consolidated balance sheet. The outstanding balance of this obligation at December 31, 20202021 was $157.7$236.6 million, $24.2$37.5 million and $133.5$199.1 million of which was classified as short-term and long-term, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation approximated the carrying value as of June 30, 20212022 and December 31, 2020.2021.
In prior periods, the Company entered into sale/leaseback transactions that were accounted for as financing transactions and reported as part of finance obligations. The outstanding balance of finance obligations related to sale/leaseback transactions at June 30, 20212022 was $19.5$14.7 million, $6.5$3.0 million and $13.0$11.7 million of which was classified as short-term and long-term, respectively on the accompanying consolidated balance sheet. The outstanding balance of this obligation at December 31, 20202021 was $23.9$17.0 million, $8.0$4.5 million and $15.9$12.5 million of which was classified as short-term and long-term, respectively on the accompanying consolidated balance sheets. The fair value of this finance obligation approximated the carrying value as of both June 30, 20212022 and December 31, 2020.2021.
Future minimum payments under finance obligations notes above as of June 30, 2021 were as follows (in thousands)
| | | | | | | | | |
| | | | | | | | Total | |
| | | Sale of Future | | | Sale/leaseback | Finance | ||
| | | revenue - debt | | | financings | Obligations | ||
Remainder of 2021 | | $ | 23,525 | | $ | 4,212 | | $ | 27,737 |
2022 | | | 46,165 | | | 4,975 | | | 51,140 |
2023 | | | 46,165 | | | 3,148 | | | 49,313 |
2024 | | | 46,165 | | | 16,154 | | | 62,319 |
2025 and thereafter | | | 72,708 | | | — | | | 72,708 |
Total future minimum payments | | | 234,728 | | | 28,489 | | | 263,217 |
Less imputed interest | | | (58,461) | | | (8,951) | | | (67,412) |
Total | | $ | 176,267 | | $ | 19,538 | | $ | 195,805 |
51
Other information related to the above finance obligations are presented in the following table:
| | | | | |
| | Six months ended | | | Six months ended |
| | June 30, 2021 | | | June 30, 2020 |
Cash payments (in thousands) | $ | 26,508 | | $ | 20,148 |
Weighted average remaining term (years) | | 4.9 | | | 4.3 |
Weighted average discount rate | | 11.3% | | | 11.2% |
Restricted Cash
In connection with certain of the above noted sale/leaseback agreements, cash of $243.5$270.9 million and $275.1 million was required to be restricted as security as of June 30, 2022 and December 31, 2021, respectively, which restricted cash will be released over the lease term. As of June 30, 2022 and December 31, 2021, the Company also had certain letters of credit backed by restricted cashsecurity deposits totaling $143.7$331.7 million and $286.0 million, respectively, that are security for the above noted sale/leaseback agreements. As of June 30, 2022, the Company also had certain customs related letters of credit totaling $13.7 million.
Fair ValueAs of June 30, 2022 and December 31, 2021, the Company had $67.7 million, held in escrow related to the construction of certain hydrogen plants.
The Company recordsalso had $5.0 million and $2.3 million of consideration held by our paying agent in connection with the fair valueApplied Cryo and Joule acquisitions, respectively, reported as restricted cash as of assets and liabilitiesJune 30, 2022, with a corresponding accrued liability on the Company’s unaudited interim condensed consolidated balance sheet. Additionally, the Company had $14.5 million in accordance with ASC 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair valuerestricted cash as collateral resulting from the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.Frames acquisition as of June 30, 2022.
In addition to defining fair value, ASC 820 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety.Investments
These levels are:
The fair values of the Company’s investments are based upon prices provided by an independent pricing service. Management has assessed and concluded that these prices are reasonable and has not adjusted any prices received from the independent provider. Securities reported at fair value utilizing Level 1 inputs represent assets whose fair value is determined based upon observable unadjusted quoted market prices for identical assets in active markets. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices, quotes from less active markets or quoted prices of securities with similar characteristics. There were no transfers between Level 1, Level 2, or Level 3 during the six months ended June 30, 2021.2022. Purchases of fixed maturity securities are classified as available-for-sale at the time of purchase based on individual security.
Assets
The composition of our investment portfolio, including cash and liabilities measured at fair value on a recurring basis are summarized belowcash equivalents, as of June 30, 2022, is shown in the following table (in thousands):
| | | | | |
| | Carrying | | Percentage of | |
|
| Amount |
| Portfolio | |
Fixed maturity securities - available-for-sale | | | | | |
U.S. Treasuries | | $ | 490,185 | | 15.8% |
Corporate bonds | | | 225,721 | | 7.3% |
Total fixed maturity securities - available-for-sale | | $ | 715,906 | | 23.0% |
Equity securities | | | 134,342 | | 4.3% |
Cash and cash equivalents | | | 2,255,951 | | 72.6% |
Total investments, including cash and cash equivalents | | $ | 3,106,199 | | 100.0% |
Extended Maintenance Contracts
| | | | | | | | | | |
| | As of June 30, 2021 | ||||||||
| | Carrying | | Fair | | Fair Value Measurements | ||||
| | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | |
Cash equivalents (1) | $ | 141,313 | $ | 141,313 | $ | 87,573 | $ | 53,740 | $ | — |
Corporate bonds | | 705,084 | | 705,084 | | — | | 705,084 | | — |
Commercial paper | | 329,722 | | 329,722 | | — | | 329,722 | | — |
U.S. Treasuries | | 170,477 | | 170,477 | | 170,477 | | — | | — |
Municipal debt | | 9,984 | | 9,984 | | — | | 9,984 | | — |
On a quarterly basis, we evaluate any potential losses related to our extended maintenance contracts for fuel cell systems and related infrastructure that have been sold. The following table shows the rollforward of balance in the accrual
5249
Certificates of deposit | | 27,454 | | 27,454 | | — | | 27,454 | | — |
Equity securities | | 120,302 | | 120,302 | | 120,302 | | — | | — |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Contingent consideration | | 9,990 | | 9,990 | | — | | — | | 9,990 |
Convertible senior notes | | 192,011 | | 1,320,194 | | — | | 1,320,194 | | — |
Long-term debt | | 160,484 | | 160,484 | | — | | — | | 160,484 |
Finance obligations | | 195,805 | | 195,805 | | — | | — | | 195,805 |
| | | | | | | | | | |
| | | | | | | | | | |
| | As of December 31, 2020 | ||||||||
| | Carrying | | Fair | | Fair Value Measurements | ||||
| | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | | | | |
Contingent consideration | | 9,760 | | 9,760 | | — | | — | | 9,760 |
Convertible senior notes | | 85,640 | | 1,272,766 | | — | | 1,272,766 | | — |
Long-term debt | | 175,402 | | 175,402 | | — | | — | | 175,402 |
Finance obligations | | 181,553 | | 181,553 | | — | | — | | 181,553 |
The fair values for available-for-saleloss contracts, including changes due to the provision for loss accrual, loss accrual from acquisition, releases to service cost of sales, and equity securities are based on prices obtained from independent pricing services. Available-for-sale securities are characterized as Level 2 assets, as their fair values are determined using observable market inputs. Equity securities are characterized as Level 1 assets, as their fair values are determined using active marketsreleases due to the provision for identical assets.
Available-for-sale securities
The amortized cost, gross unrealized gains and losses, fair value of those investments classified as available-for-sale securities, and allowance for credit losses at June 30, 2021 are summarized as followswarrants (in thousands):
| | | | | | | | | | | | | | |
| Amortized | | Gross | | Gross | | Fair | | Allowance for | |||||
| Cost | | Unrealized Gains | | Unrealized Losses | | Value | | Credit Losses | |||||
Corporate bonds | $ | 707,022 | | $ | 51 | | $ | (1,989) | | $ | 705,084 | | | — |
Commercial paper | | 329,471 | | | 253 | | | (2) | | | 329,722 | | | — |
Certificates of deposit | | 27,460 | | | — | | | (6) | | | 27,454 | | | — |
U.S. Treasuries | | 170,672 | | | — | | | (195) | | | 170,477 | | | — |
Municipal debt | | 9,993 | | | — | | | (9) | | | 9,984 | | | — |
Total | $ | 1,244,618 | | $ | 304 | | $ | (2,201) | | $ | 1,242,721 | | $ | — |
A summary of the amortized cost and fair value of investments classified as available-for-sale, by contractual maturity, at June 30, 2021 is as follows (in thousands):
| | | | | |
| Six months ended | | Year ended | ||
| June 30, 2022 | | December 31, 2021 | ||
Beginning balance | $ | 89,773 | | $ | 24,013 |
Provision for loss accrual | | 3,116 | | | 71,988 |
Loss accrual from acquisition | | — | | | 2,636 |
Releases to service cost of sales | | (21,247) | | | (8,864) |
Foreign currency translation adjustment | | (103) | | | — |
Ending balance | $ | 71,539 | | $ | 89,773 |
| | | | | |
| June 30, 2021 | ||||
| | Amortized | | Fair | |
Maturity: | | Cost | | Value | |
Within one year | $ | 717,531 |
| $ | 717,285 |
After one through five years |
| 527,087 | |
| 525,436 |
Total | $ | 1,244,618 | | $ | 1,242,721 |
The cost, gross unrealized gains, gross unrealized losses, and fair value of those investments classified as equity securities at June 30, 2021 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
53
Fixed income mutual funds | $ | 89,962 |
| $ | 17 | | $ | (81) | | $ | 89,898 |
Exchange traded mutual funds | | 30,016 | | | 388 | | | — | | | 30,404 |
Total | $ | 119,978 | | $ | 405 | | $ | (81) | | $ | 120,302 |
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet arrangements that are likely to have a current or future significant effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Estimates
Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these unaudited interim condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of and during the reporting period. On an on-goingongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, bad debts, inventories, goodwill and intangible assets, impairmentvaluation of long-lived assets, and PPA executory contract consideration, accrual for service loss on extended maintenance contracts, operating and finance leases, product warranty reserves,accruals, unbilled revenue, common stock warrants, income taxes, stock-based compensation and contingencies. We base our estimates and judgments on historical experience and on various other factors and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about (1) the carrying values of assets and liabilities and (2) the amount of revenue and expenses realized that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There have been no changes in our critical accounting estimates from those reported in our 20202021 Form 10-K.
Recent Accounting Pronouncements
Recently Adopted Accounting Guidance
Other than the adoption of the accounting guidance mentioned in our 20202021 Form 10-K, and ASU 2020-06, there have been no other significant changes in our reported financial position or results of operations and cash flows resulting from the adoption of new accounting pronouncements.
On January 1, 2021, we early adopted ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) using the modified retrospective approach. Consequently, the Company’s 3.75% Convertible Senior Notes is now accounted for as a single liability measured at its amortized cost. This accounting change removed the impact of recognizing the equity component of the Company’s convertible notes at issuance and the subsequent accounting impact of additional interest expense from debt discount amortization. Future interest expense of the convertible notes will be lower as a result of adoption of this guidance and net loss per share will be computed using the if-converted method for convertible instruments. The cumulative effect of the accounting change upon adoption on January 1, 2021 increased the carrying amount of the 3.75% Convertible Senior Notes by $120.6 million, reduced accumulated deficit by $9.6 million and reduced additional paid-in capital by $130.2 million.
Recent Accounting Guidance Not Yet Effective
All issued but not yet effective accounting and reporting standards as of June 30, 20212022 are either not applicable to the Company or are not expected to have a material impact on the Company.
Item 3 — Quantitative and Qualitative Disclosures about Market Risk
There has been no material change from the information provided in the 2020Company’s 2021 Form 10-K under the section titled “Item 7A: Quantitative and Qualitative Disclosures About Market Risk,Risk.” other than those described below.
54
During the first six months of 2021, the Company purchased U.S. Treasury securities, corporate bonds, commercial paper, certificates of deposit, money market funds and municipal debt, in which the major components of market risk affecting us are credit risk and interest rate risk. We also purchased equity securities, in which the major component of market risk affecting us is equity risk.
Our exposure to changes in foreign currency rates is primarily related to sourcing inventory from foreign locations and operations of HyPulsion, S.A.S., our French subsidiary that develops and sells hydrogen fuel cell systems for the European material handling market. This practice can give rise to foreign exchange risk resulting from the varying cost of inventory to the receiving location. The Company reviews the level of foreign content as part of its ongoing evaluation of overall sourcing strategies and considers the exposure to be not significant. Our HyPulsion exposure presently is mitigated by low levels of operations and its sourcing is primarily intercompany in nature and denominated in U.S. dollars.
Item 4 — Controls and Procedures
(a) Disclosure controls and procedures.
(a) | Disclosure Controls and Procedures |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our
50
management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer) as appropriate, to allow for timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective in 2018, 2019, 2020 and 2021 because of the material weaknessweaknesses in internal control over financial reporting described in Part II, Item 9A “Controls and Procedures” of our 20202021 Form 10-K. The material weakness hasweaknesses have not been remediated as of June 30, 2021. 2022.
Material Weakness identified as of December 31, 2020
Management identified that the following deficiency existed in internal control over financial reporting as of December 31, 2020:in 2018, 2019, 2020 and 2021: the Company did not maintain a sufficient complement of trained, knowledgeable resources to execute its responsibilities with respect to internal control over financial reporting for certain financial statement accounts and
disclosures. As a consequence, the Company did not conduct an effective risk assessment process that was responsive to changes in the Company's operating environment and did not design and implement effective process-level controls activities in the following areas:
(a) |
(b) |
(c) |
As of December 31, 2021, management identified additional deficiencies which were also the result of the Company not maintaining a sufficient complement of trained, knowledgeable resources to execute its responsibilities and conduct an effective risk assessment. Specifically, the process-level controls to ensure proper capitalization of inventory costs were not performed with an appropriate level of precision to detect and prevent a material misstatement. Additionally, management identified ineffective general information technology control activities over an information technology system that is used in calculating fuel billings, due to the ineffective risk assessment in identifying the relevant system. Management did not design and implement general information technology control activities in response to the current year growth in fuel delivered to customers.
The control deficiency, related to the accrual for loss contracts related to service, resulted in a material misstatement that was corrected prior to the filing of the 2021 Form 10-K. We did not identify any other material misstatements to the consolidated financial statements and there were no changes to previously issued financial results as a result of the other control deficiencies; however, the control deficiencies described above created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis. As a result, we concluded the deficiencies described above represent material weaknesses in our internal control over financial reporting, and our internal control over financial reporting was not effective as of December 31, 2021.
The Company acquired Applied Cryo Technologies and Frames Holdings B.V. (together, the “Acquired Companies”) during 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, the Acquired Companies’ internal control over financial reporting associated with total assets of $369.1 million and total revenues of $15.8 million included in the consolidated financial statements of the Company as of and the year ended December 31, 2021.
51
Remediation Activities
As reported on our 20202021 Form 10-K, we continue to take steps to remediate this material weakness and will continue to take further steps until such remediation is complete. These steps include the following:
a) | Hiring additional resources, including third-party resources, with the appropriate technical accounting expertise, and strengthening internal training, to assist us in identifying and addressing any complex technical accounting issues that affect our consolidated financial statements. |
b) |
55
c) |
d) |
e) |
f) |
g) | Implementing general information technology controls over our information technology system used in calculating fuel billings. |
h) | Implementing structured analysis and review procedures around the manual processes related to capitalization of inventory costs. |
i) | Reporting regularly to the Company’s Audit Committee on the progress and results of the remediation plan, including the identification, status, and resolution of internal control deficiencies. |
As we work to improve our internal control over financial reporting, we may modify our remediation plan and may implement additional measures as we continue to review, optimize, and enhance our financial reporting controls and procedures in the ordinary course. The material weaknessweaknesses will not be considered remediated until the remediated controls have been operating for a sufficient period of time and can be evidenced through testing that theythese controls are operating effectively.
(b)(c) Changes in internal control over financial reporting.
reporting
Exclusive of the steps taken inas part of the remediation activities, there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 20212022 that hashave materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1 — Legal Proceedings
On August 28, 2018, a lawsuit was filed on behalf of multiple individuals against the Company and five corporate co-defendants in the 9th Judicial District Court, Rapides Parish, Louisiana. The lawsuit relates to the previously disclosed May 2018 accident involving a forklift powered by the Company’s fuel cell at a Procter & Gamble facility in Louisiana. The lawsuit alleges claims against the Company and co-defendants, including Structural Composites Industries, Deep South Equipment Co., Air Products and Chemicals, Inc., and Hyster-Yale Group, Inc. for claims under the Louisiana Product Liability Act (“LPLA”) including defect in construction and/or composition, design defect, inadequate warning, breach of express warranty and negligence for wrongful death and personal injuries, among other damages. Procter & Gamble has intervened in that suit to recover worker’s compensation benefits paid to or for the employees/dependents. Procter & Gamble has also filed suit for property damage, business interruption, loss of revenue, expenses, and other damages. Procter & Gamble alleges theories under the LPLA, breach of warranty and quasi-contractual claims under Louisiana law. Defendants include the Company and several of the same co-defendants from the August 2018 lawsuit, including Structural Composites Industries, Deep South Equipment Co., and Hyster-Yale Group, Inc.
In March and May 2021, Company stockholders, individually and on behalf of all persons who purchased or otherwise acquired Plug securities between November 9, 2020 and March 16, 2021 (the “Class”), filed complaints in the U.S. District Court for the Southern District of New York and U.S. District Court for the Central District of California against the Company, Plug Chief Executive Officer Andrew Marsh, and Plug Chief Financial Officer Paul Middleton (together, the “Defendants”), captioned Dawn Beverly et al. v. Plug Power Inc. et al., Case No. 1:21-cv-02004 (S.D.N.Y.), Smolíčekv. Plug Power Inc. et al., Case No. 2:21-cv-02402 (C.D. Cal.) and Tank v. Plug Power Inc. et al., Case No. 1:21-cv-03985 (S.D.N.Y.). The complaints include two claims, for (1) violation of Section 10(b) of the Exchange Act and Rule 10b5 promulgated thereunder (against all Defendants); and (2) violation of Section 20(a) of the Exchange Act (against Mr. Marsh and Mr. Middleton). The complaints allege that Defendants failed to disclose that the Company (i) “would be unable to timely file its 2020 annual report due to delays related to the review of classification of certain costs and the recoverability of the right to use assets with certain leases”; and (ii) “was reasonably likely to report material weaknesses
56
in its internal control over financial reporting[.]” The complaints allege that, a result, “positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis,” causing Class members losses and damages. The complaints seek compensatory damages “in an amount to be proven at trial, including interest thereon”; “reasonable costs and expenses incurred in th[e] action”; and “[s]uch other and further relief as the [c]ourt may deem just and proper.” On July 22, 2021, the U.S. District Court for the Southern District of New York consolidated the three cases and appointed a lead plaintiff. On July 28, 2021, Tank v. Plug Power, et. al., was voluntarily dismissed.
On March 31, 2021, Company stockholder Junwei Liu, derivatively and on behalf of nominal defendant Plug, filed a complaint in the U.S. District Court for the Southern District of New York against certain Company directors and officers (the “Derivative Defendants”), captioned Liu v. Marsh et al., Case No. 1:21-cv-02753 (S.D.N.Y.) (the “Liu Derivative Complaint”). The Liu Derivative Complaint alleges that, between November 9, 2020 and March 1, 2021, the Derivative Defendants “made, or caused the Company to make, materially false and misleading statements concerning Plug Power’s business, operations, and prospects” by “issu[ing] positive financial information and optimistic guidance, and made assurances that the Company’s internal controls were effective,” when, “[i]n reality, the Company’s internal controls suffered from material deficiencies that rendered them ineffective.” The Liu Derivative Complaint asserts claims for (1) breach of fiduciary duties, (2) unjust enrichment, (3) abuse of control, (4) gross mismanagement, (5) waste of corporate assets, and (6) contribution under Sections 10(b) and 21D of the Exchange Act (as to the named officer defendants). The Liu Derivative Complaint seeks a judgment “[d]eclaring that Plaintiff may maintain this action on behalf of Plug”; “[d]eclaring that the [Derivative] Defendants have breached and/or aided and abetted the breach of their fiduciary duties”; “awarding to Plug Power the damages sustained by it as a result of the violations” set forth in the Liu Derivative Complaint, “together with pre-judgment and post-judgment interest thereon”; “[d]irecting Plug Power and the [Derivative] Defendants to take all necessary actions to reform and improve Plug Power’s corporate governance and internal procedures to comply with applicable laws”; and “[a]warding Plaintiff the costs and disbursements of this action, including reasonable attorneys’ and experts’ fees, costs, and expenses”; and “[s]uch other and further relief as the [c]ourt may deem just and proper.”
On April 5, 2021, Company stockholders Elias Levy and Camerohn X. Withers, derivatively and on behalf of nominal defendant Plug, filed a complaint in the U.S. District Court for the Southern District of New York against the Derivative Defendants named in the Liu Derivative Complaint, captioned Levy et al. v. McNamee et al., Case No. 1:21-cv-02891 (S.D.N.Y.) (the “Levy Derivative Complaint”). The Levy Derivative Complaint alleges that, from November 9, 2020 to April 5, 2021, the Derivative Defendants “breached their duties of loyalty and good faith” by failing to disclose “(1) that the Company would be unable to timely file its 2020 annual report due to delays related to the review of classification of certain costs and the recoverability of the right to use assets with certain leases; (2) that the Company was reasonably likely to report material weaknesses in its internal control over financial reporting; and (3) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.” The Levy Derivative Complaint asserts claims for (1) breach of fiduciary duty (as to the named director defendants), (2) unjust enrichment (as to certain named director defendants), (3) waste of corporate assets (as to the named director defendants), and (4) violations of Sections 10(b) and 21D of the Exchange Act (as to the named officer defendants). The Levy Derivative Complaint seeks a judgment “declaring that Plaintiffs may maintain this action on behalf of the Company”; finding the Derivative Defendants “liable for breaching their fiduciary duties owed to the Company”; directing the Derivative Defendants “to take all necessary actions to reform and improve the Company’s corporate governance, risk management, and internal operating procedures to comply with applicable laws”; “awarding damages to the Company for the harm the Company suffered as a result of Defendants’ wrongful conduct”; “awarding damages to the Company for [the named officer Derivative Defendants’] violations of Sections 10(b) and 21D of the Exchange Act”; “awarding Plaintiffs the costs and disbursements of this action, including attorneys’, accountants’, and experts’ fees”; and “awarding such other and further relief as is just and equitable.” On April 27, 2021, the U.S. District Court for the Southern District of New York consolidated the Liu Derivative Complaint and the Levy Derivative Complaint under Case No. 1:21-cv-02753-ER (the “Consolidated Action”).
On May 13, 2021, Company stockholder Romario St. Clair, derivatively and on behalf of nominal defendant Plug, filed a complaint in the Supreme Court of the State of New York, County of New York against the Derivative Defendants named in the Liu Derivative Complaint, captioned St. Clair v. Plug Power Inc. et al., Index No. 653167/2021 (N.Y. Sup. Ct., N.Y. Cty.) (the “St. Clair Derivative Complaint”). The St. Clair Derivative Complaint alleges that, for
5752
approximately two years beginning on March 13, 2019, the Company “failedPart II. OTHER INFORMATION
Item 1 – Legal Proceedings
See “Note 19: Commitments and Contingencies” within Item 1 of this Form 10-Q for a discussion regarding material legal proceedings.
Except as otherwise noted, there have been no material developments in legal proceedings. For previously reported information about legal proceedings, refer to disclose and misrepresented the following material, adverse facts, which the [Derivative] Defendants knew, consciously disregarded, or were reckless in not knowing,Part I, Item 3, “Legal Proceedings,” including: “(a) that the Company was experiencing known but undisclosed material weaknesses in its internal controls over financial reporting; (b) the Company was overstating the carrying amount of certain right of use assets and finance obligations associated with leases; (c) the Company was understating its loss accrual on certain service contracts; (d) the Company would need to take impairment charges relating to certain long-lived assets; (e) the Company was improperly classifying research [and] development costs versus costs of goods sold; and (f) the Company would be unable to file its Annual Report for the 2020 fiscal year due to these errors.” The St. Clair Derivative Complaint asserts claims for (1) breach of fiduciary and (2) unjust enrichment. The St. Clair Derivative Complaint seeks a judgment “for the amount of damages sustained by the Company” as a result of the Derivative Defendants’ breaches of fiduciary duties and unjust enrichment; “[d]irecting Plug Power to take all necessary actions to reform and improve its corporate governance and internal procedures to comply with applicable laws”; for “equitable and/or injunctive relief as permitted by law, equity, and state statutory provisions”; “awarding to Plug Power restitution” and “ordering disgorgement of all profits, benefits, and other compensation obtained” by the Derivative Defendants; “awarding to plaintiff the costs and disbursements of the action, including reasonable attorneys’ fees, accountants’ and experts’ fees, costs, and expenses”; and “granting such other and further relief as the [c]ourt deems just and proper.”Company’s 2021 Form 10-K.
Item 1A – Risk Factors
TheIn addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed underthat could materially affect the heading “Risk Factors” and elsewhereCompany’s business, financial condition or future results discussed in the Company’s Annual Report on2021 Form 10-K for in Part I, Item 1A. “Risk Factors.” The risks described in the year ended2021 Form 10-K are not the only risks that could affect the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or operating results in the future. There have been no material changes to our risk factors since December 31, 2020 continue to apply to our business.2021.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) None.
Item 3 — Defaults Upon Senior Securities
None.
Item 4 — Mine Safety Disclosures
None.
Item 5 — Other Information
None.
5853
Item 6 — Exhibits
| |
3.1 | |
3.2 | |
3.3 | |
3.4 | |
3.5 | |
3.6 | |
3.7 | |
3.8 | |
3.9 | |
| |
31.1* | |
| |
| |
| |
101.INS* | Inline XBRL Instance Document |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* | Submitted electronically herewith. |
** | Pursuant to Item 601(b)(32)(ii) of Regulation S-K, this certification is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
5954
Signatures
Pursuant to requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
| PLUG POWER INC. | |
| | |
Date: August | By: | /s/ Andrew Marsh |
| | Andrew Marsh |
| | President, Chief Executive |
| | |
Date: August | By: | /s/ Paul B. Middleton |
| | Paul B. Middleton |
| | Chief Financial Officer (Principal |
6055